- Extreme Swiss Franc volatility leads to a surge in broader FX volatility prices/expectations
- Exchange rate risk very high as traders fear continued turbulence
- We favor high-volatility strategies and reduced leverage through foreseeable future
Unexpected action from the Swiss National Bank has left markets on edge, and elevated forex volatility prices warn of major market moves. Here’s what we’re watching.
Our DailyFX Volatility Indices show that broader FX market volatility expectations have hit their highest levels in nearly five years—dating back to the ‘Flash Crash’ of May, 2010. An obvious shift in market conditions warns that large currency swings remain likely ahead, and this is especially true for the Swiss Franc and other European counterparts. We will shift our trading focus to higher-volatility systems and curtail leverage/exposure accordingly.
Forex Volatility Prices Surge as Markets Absorb Post-Swiss National Bank Price Moves
Data source: Bloomberg, DailyFX Calculations
The week ahead seems especially risky given a highly-anticipated European Central Bank monetary policy decision as well as Greek elections threaten big moves across Euro pairs. A strong majority of traders believe the ECB will announce unprecedented quantitative easing measures, and those expectations help explain why the Euro has fallen to fresh multi-year lows against major counterparts. Yet there remains ample room for surprise, and traders should express caution ahead of what promises to be a highly market-moving event.
In terms of trading strategy we will thus focus on trading techniques which tend to do well in fast-moving markets. Past performance is NOT indicative of future results, but our Breakout2 trading system tends to do well when volatility prices have risen. It is nonetheless critical to note that elevated volatility risks can work against us, and we’ll look to trade on lower leverage through the foreseeable future.
Recommended Content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.