Volatility in the currency market is the number one topic for many investors. Often, from a volatility depends which investment strategy you choose, how big trends could potentially arise, and what possible ranges of price movements to expect. What's more, you can get used to small or large volatility or develop trading strategies based on it.
Currently, when the vast majority of global central banks keep interest rates low and interest rate differences are relatively small compared to historical values, the volatility in the forex market seems to suffer. In other words, the actions of central banks seem to contribute to a decrease in volatility in the currency market and, moreover, investors might not currently assume that the ranges of fluctuations are to increase significantly in the future - according to data from the currency options market.
Yesterday, January 16 we wrote about the implied volatility for the USD/JPY pair falling to the lowest level in history. The implied volatility for the annual options for the USD/JPY pair fell for the ninth day in a row to a historically low level of 6.14. Meanwhile, the EUR/USD implied volatility for six-month options also fell to a new record low of 4.78 proc. In turn, the expected weekly volatility is at 4.07 percent with the average from the previous year equal to 5.10 percent.
Lower volatility in the currency market could, on the one hand, diminish the vigilance of investors who get used to small exchange rate changes and any increase in volatility can potentially lead to market panic. On the other hand, the decrease in volatility in the currency market may contribute to an increase in interest in the situation on the commodity market or even on stock exchange indices that hit new records on Wall Street.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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