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Forex: Why a EURUSD Drop May be More Severe than USDJPY Rally

Forex: Why a EURUSD Drop May be More Severe than USDJPY Rally

John Kicklighter, Chief Strategist

Talking Points:

• A risk aversion shift can override all other fundamentals, but year-end quiet dampens its probability

• Meanwhile, stimulus speculation is heating up with the majors in various states of speculation

•We range from a BoJ expected to pursue QE2 to a debated Fed Taper to an upgrade BoE rate hike timeframe

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A fresh record high and another tepid volume day for the Dow has reinforced expectations on risk trends. Yet, in the quiet and steady risk lean, there is plenty to speculate on in the FX world. The major currencies are in various stages of the monetary policy cycle ranging from a recent swell in expectations for a BoE rate hike (though still years away) all the way to a deja vu situation for a second round BoJ stimulus program. With interest amplified by a developments in heavily debated policy programs like the Fed's Taper and recent ECB rate cut, this theme can prove an active fundamental driver for the FX markets when the markets expect quiet.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.