EUR/USD: Volatility gauge hits record low, focus on US data

• EUR/USD's ATM volatility has hit record lows and the S&P 50 VIX has dropped to seven-month lows. 
• Volatility will likely spike if the US-China trade talks falter. 
• The US personal and corporate spending numbers will take precedence over the Q3 GDP numbers. 

EUR/USD's one-month ATM volatility, which measures the calculated or implied mid-rate volatility for an at-the-money (ATM) option for a specific expiration date, dropped to a record low of 4.012 on Tuesday. 

The equity market volatility is also falling. The S&P 500 VIX, a measure of the stock market's expectation of volatility implied by S&P 500 index options, fell to 11.42 on Tuesday, the lowest level since April 17. 

The drop in the uncertainty, as represented by the volatility gauges, could be associated with the recent developments suggesting the US and China are closer to resolving issues. 

That said, an extended period of low volatility often paves the way for a big move on either side. The uncertainty will spike if the trade negotiations falter, possibly yielding a big drop in the common currency. 

As for today, the focus is on the US data – Q3 GDP, Personal Spending (Oct), Durable Goods Orders (Oct), Weekly Jobless Claims. 

The third-quarter annualized GDP is projected to be unchanged at 1.9%. The economy expanded 2% and 3.1% in the second and the first quarter, respectively. 

The US slowdown has been priced in by markets and the focus will be on the Personal Spending and Corporate Spending (Durable Goods Orders) data. If these numbers blow past expectations, EUR/USD will likely suffer a convincing break below 1.10. The German import price index, due at 07:00 GMT, is unlikely to move the EUR pairs. 

At press time, EUR/USD is trading in the red at 1.1013, having faced rejection at the descending (bearish) 5-day moving average at 1.1025. 

ATM volatility

Technical levels