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Exposure and Activity Analysis For EUR/USD, VIX, Oil and More

Exposure and Activity Analysis For EUR/USD, VIX, Oil and More

John Kicklighter, Contributor

Talking Points:

  • Market conditions reflect a more systemic and objective view of the financial system than technicals and fundamentals
  • Analysis of participation and general active levels can reshape our strategy and trade expectations
  • We do 'market conditions' analysis on EUR/USD, GBP/USD, USD/JPY, AUD/USD, the Dollar Index, the VIX and Oil

See what live coverage is scheduled to cover key event risk for the FX and capital markets on the DailyFX Webinar Calendar.

For many benchmarks, volume matches the low activity level of the markets that register the turnover. Yet, where the daily turnover may be low, the exposure for the dominant portion of these key drivers of the broader financial system remains exceptionally high. These are considerations that fall outside of the traditional technical and fundamental evaluations that we typically run to highlight trade opportunities. That said, these empirical evaluations of market conditions can present a more comprehensive view of the market and its trade potential than the subjective interpretations that often come with the more familiar techniques.

Market conditions as an analysis approach is open to considerable interpretation and ambiguity itself - in fact many usually fold it into their preferred technical or fundamental evaluations. It deserves to be assessed individually and given some general boundaries for interpretation. For me, liquidity and activity are more appropriate for market conditions filtering rather than buried into other analysis types. It isn't always easy to gauge either - much less both. However, there are means for establishing these basics. While far from a perfect measure for the market-at-large, futures offer an easy access proxy for the underlying. Volume that sputters on tight range against a troubled fundamental backdrop with an extreme level of exposure (open interest) can reflect high-risk complacency. There is a considerable amount of this in the market currently.

We look at this combination of market activity, turnover and exposure across a range of assets. EUR/USD reflects a low volume that befits the struggle to clear the multi-month, 300-pip range - itself in a broader 1.1700 - 1.0350, year range. A similar 'sitting duck' picture comes with GBP/USD and AUD/USD. An assumption of persistently measured price action ill prepares those regular traders that ignore the possibility that a tidal wave is a tangible possibility in present conditions. Meanwhile, both USD/JPY and us oil conditions show a greater appreciation of - and trading appetite for - the volatility present. A consistent turnover and relatively-measured exposure reflect markets where traders are more ready to act and have enough market to beat a hasty exit. We discuss what market conditions say about a range of benchmarks in today's Strategy Video.

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