USD is King in Low Currency Volatility Environment, Gold Drops Below Support - US Market Open

2019-04-11 13:10:00

MARKET DEVELOPMENT – USD is King in Low Currency Volatility Environment, Gold Drops Below Support

USD: Despite the risk events throughout the week, FX volatility has been very subdued and continues to do so, with the most traded currency, EURUSD, seeing implied volatility hovering around record lows (1-month vols). Consequently, in this period of low volatility USD remains firm given the attractiveness that carry trades provide, while the fundamental backdrop for the US economy is notably stronger than the Eurozone. With little on the docket, eyes will turn to the Fed speak later today.

GBP: Given that an extension had largely been priced in and the outlook remains unchanged, GBP subsequently failed to find a renewed bid after the announcement. As a reminder, speculative positioning had been relatively neutral, according to the latest COT update, which in turn suggested that a short squeeze would be unlikely. However, while an extension may help GBPUSD hold support at 1.30, uncertainty will persist with a wide range of outcomes still possible (general election, second referendum, Theresa May resignation).

Risk Currencies (AUD, NZD, CAD): Risk sensitive currencies are the notable underperformers this morning against the greenback with the Canadian Dollar feeling the pressure from the pullback in oil prices. In turn, USDCAD is back to familiar resistance at 1.3385-1.34.

Gold: As the USD stabilises around the 97.00 handle, gold prices have taken a slight knock with the precious metal dropping back below the 1300 level. Demand for the precious metal has also been dampened by the mild support for equity markets.