According to analysts at Danske Bank, the patient stance adopted by most major central banks lately continues to limit volatility in the FX sphere and G10 vol continues to drop.
“EUR crosses generally bid yesterday as the lack of trust in ECB’s willingness to put action to its words on its easing options provided support. EUR/USD back around the 1.1250 mark, and EUR/GBP failed to move much lower even as the longer Brexit extension arguably reduces the risk of no deal – instead it drags out uncertainty.”
“A range of global FX vol indices are now back at 2014 levels, hinting that the market is increasingly complacent about risks in either direction. What can drive the next move out of current ranges in the G10 sphere? A trade deal – which looks increasingly likely given that an enforcement mechanism has reportedly now been agreed upon, and an – at least moderate – Chinese recovery could do the trick as this would be a key catalyst for central banks to regain trust in the ‘normalisation’ process.”
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