I know it is like saying “The winter was particularly harsh in NY this year” but the volatility in the forex market today and in 2014 in general is down.

The top bar chart above shows the range for today for the major currency pairs (blue bar) and their current 22- day average trading ranges (about a month’s worth of trading days – red bar). With the exception of the GBP currency pairs, today’s ranges (blue) are below the averages (red). This has been the trend of late, and that has led to a steady decline of the trading ranges over time.

The lower line charts above show those trends in the 22-day average ranges for the major currency pairs.  Over the last few months, those trends are down.

Some highlights

  • The EURUSD had a high 22-day average range of 92 pips. It is currently at 77 pips (was as low as 71 pips).
  • The GBPUSD had a high average range of 113 pips and is down to 95 currently. Today’s range of 119 pips is a welcome relief .
  • The USDJPY  has seen the average range move from 105 to 75 currently.
  • The trends in the other currency pairs are all moving to the downside.

Potential reasons for the recent declines:

  1. Increased Regulation.  Increased regulation like Dodd Frank has lowered liquidity as risk taking is slashed.  This has sapped the needed  power to move/trend the currency pairs.  PS Where is the regulation of Bitcoin?
  2. Currency Fixing Scandal.  There have been a lot of  traders at major banks who have lost jobs as a result of the currency fixing scandal. Traders are not easily replaced overnight.  Traders still in charge are less experienced, more conservative, more fearful and so are their bosses.
  3. Uncertainty.  The weather has been a major talking point in the US and that may continue into April and May as the effects of the harsh weather, work themselves out with the winter thaw.  Will the consumer come back? Has hiring been suppressed and come back?  We won’t know until we know.
  4. Rising stocks.  Stocks are doing so well, why mess with currencies.
  5. Distrust.   When traders are distrustful of the market moves, they trade with a short term trading horizon.  When the price goes down, instead of riding the trend and adding to the position, traders are covering and buying back.
  6. Too much transparency.  There is rarely a day when some central bank official is not talking.  How many times can a Fed official tell us that tapering is to continue, or that the ECB has all tools available at their disposal, or that rates will stay low for an extended period of time.  Occasionally, the market – due to lack of volatility – starts to believe that there is a surprise in the transparency around the corner.  The latest was “the ECB will ease soon”. Yeah right.  As long as there can be the ubiquitous “Inflation expectations are firmly anchored”, 0.7% inflation or lower can be explained away, and as long as 12.0% unemployment does not go to 12.1%, employment is stabilizing.
  7. Transparent Thresholds?….Just joking.  The transparent thresholds put in place by the BOE, the Fed and others were meant to give traders the break points for policy change. Then a funny thing happened on the way to thresholds.   They started getting close and central bankers got cold feet. So 6.5% unemployment threshold becomes something else. What?   Well maybe Central Banks will go back to the way it was before thresholds….
  8. Even the market surprises don’t work.  The last big surprise, was probably the surprise ECB cut on November 7th.  Surely that would lead to a lower EURUSD.  The lowest price for the EURUSD since that surprise cut was reached on what day?  November 7th.  To make matters worse, the US Non Farm Payroll release on November 8th was expected to be 120K. It came in at 204k instead with+60K revisions to prior months.  The EURSUD rose from 1.3300 to 1.3900.

No matter the reason, the ranges are down. The hope is that like the extremely harsh winter, there will be a thaw and the trading ranges will pick up once again. Perhaps we even get trends where there are trend winners and anti-trend losers, instead of scared traders trying to find their way on a random walk.


All information on this site is provided for informational and educational purposes only. Information provided is not to be misconstrued as trading advice. Past results are not indicative of future results. In addition trading in foreign exchange markets on margin carries a high level of risk, and may not be suitable for all individuals.