Click here for PDF version

EURUSD <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Volatilities dropped on the week and were reflective of the thin data schedule as the underlying currency stayed in a narrow range for the most part.  In accordance with the rather dead week, implieds dropped 13 percent while actuals dropped even further below, plunging a whole 24 percent.  This now brings the two components closer together and provides a temporary ceiling or visual top in our model.  Now, tipping back towards the upper band, suggestions are emerging of a more range bound environment following the explosive climb in the previous week.  The indication could not be farther from the truth as near term event risk runs light heading into the weekend and the scheduled Federal Reserve decision next week.

GBPUSD

Sterling implieds dropped slightly on the week, leading the differential higher as actuals plunged the most of all the major currency pairs.  For the week, actuals reflected a rather inactive market by declining 44 percent.  The decrease now places the differential in positive territory at a plus 1.09 and places the visual above the upper band.  However, with event risk thinning as we approach months end, a range bound suggestion may emerge as the spread looks to be stalling after the previous rise.  At this point, traders should be aware of the potential shift in conditions, but wait for a retrace in the spread for confirmation of the switch.

USDJPY

The components of the Japanese yen spread acted in similar fashion to the Pound studies with implieds remaining relatively stable on the week.  Comparably, the actuals did nothing but the opposite, dropping 24 percent and widening the spread between the two.  As a result, the differential is creeping ever higher above the zero line into positive territory and above the upper band of our model.  However, like sterling volatilities, the suggestions look to be stalling right above and could shift to a more ranging environment.  In hindsight, the scenario remains highly probably with similar situations in the middle of February.  The only caveat seems to be heightened possibility of revaluation efforts by the Peoples Bank of China.  A remote possibility at best, this would cause a higher spike on implieds over the next week.