Lack of FX market volatility a 'constant theme'

The lack of volatility is a pretty constant theme now with low rates among the constant features, notes a leading City analyst. 

In a note to clients, Kit Juckes, Head of FX at Société Générale, said currency market volatility is at levels not seen since 2014, while equity vol and credit spreads have pretty much reversed the spikes seen at the back end of last year.

"That lack of vol is going to keep investors looking for yield, and will do nothing to help the euro, or the yen for that matter. Both are helped by valuation but that leaves them stuck in tight ranges."

CFTC data show the smallest of reductions in the net euro short. The net speculative short is some way off the level it was at after the ECB first moved to negative rates, and isn't quite back to end 2016 levels but it's enough to provide some support here. 

“However, a bounce is dependent on better European news and higher Bund yields. Last week was a disappointment on both counts. We are likely to stay here for a while longer. Meanwhile, yen shorts are increasing too, but a stronger yen needs a catalyst and higher oil prices combined with very low volatility are not a great mix. Net result: G3 FX is trapped,” Juckes added.

Meanwhile, the spike in oil prices over the weekend, as Iran is shut out of the crude market by the Trump administration, were also driving FX moves. 

“We like shorts in USD/NOK and in EUR/AUD. This week Updated EU Commission forecasts and EU confidence data are due this side of the Atlantic, the Richmond Fed index and US existing home sales are due in the US. The latter may be weak but that may not move markets very much,” the SocGen commentator concluded.