Talking Points:
- EUR/USD presses below the trendline from the late-July lows.
- USD/JPY advance continues on the back of Kuroda commentary.
- August is typically a bad month for risk and a good month for the US Dollar - see the August forex seasonality report.
As we trudge our way through this last unofficial week of summer, it's inevitable that market volatility, in absence of event-driven news flow, will likely be tempered. As such, today feels like a repeat of yesterday thus far, with the USDOLLAR Index broadly, and its components individually, trading at or close to their levels from 24-hours ago.
While the slow, grinding environment may be frustrating for some, there are some important tenets to remember. First off, FX markets, more so than other asset classes, experience volatility clustering. B.B. Mandelbrot revealed this concept in 1963: "large changes tend to be followed by large changes, of either sign, and small changes tend to be followed by small changes."
As such, the axiom, "past performance does not predict future results" is insightful: just because it is quiet now in FX markets does not mean it will be quiet tomorrow or next week. After the recent jump in Fed rate hike expectations (they've cooled a bit, with December 2016 pricing a 61% chance of a rate hike today), markets should be particularly attuned to US economic data, as the Fed grapples with the propsect of raising rates in September.
See the video (above) for technical considerations in EUR/USD, GBP/USD, AUD/USD, USD/JPY, and the USDOLLAR Index.
Read more: US Dollar Posture Improves as December Rate Hike Odds Jump
--- Written by Christopher Vecchio, Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
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