The Forex market trades in a quiet mode so far this week, with little or no changes on most currency pairs. Ranges hold and it seems that nothing can make them break.
As always, patience and discipline play an important role. What else can we, as traders, do when volatility is missing?
Perhaps the most relevant pair to illustrate the current ranges is the EURUSD. For the entire 2018, it traded more or less between 1.25 and 1.22. Price stability at its best, right?
While this is awesome for central banks, that strive for such stability, it is a nightmare for Forex traders. Or, at least for swing traders and investors.
Other currency pairs show similar conditions. The EURGBP is stuck in such a small range, that only some Brexit-related news seems to push it out of it.
The EURJPY flirts with 130, which seems to be a defining level for the cross. And, even the USD pairs, like USDJPY, USDCAD and AUDUSD don’t move.
Is this the calm before the storm? Most likely yes!
ECB and the Euro
Last week ended with the ECB press conference on Thursday and the NFP release on Friday. They were both supposed to bring heightened volatility levels. They failed.
The ECB did the job, though. And that is, to drag EURUSD lower. It dropped from 1.2440 area to below 1.23 on Draghi saying that the European Central Bank will remain cautious ahead of tapering the quantitative easing program.
Of course, he said that. What else can you do when the Euro surges, despite the negative rates in place and the central bank still buying bonds? Verbal intervention is a tool often used by central bankers.
But verbal intervention is one thing, and the market reality is another. The Euro pullbacks, so far, were met only with heavy buying.
Moving forward, the ECB prepares for Draghi’s successor. The monetary policy as we know it today might change in a blink of an eye.
Let’s not forget that the first thing Draghi did after becoming the ECB President was to cut the interest rate. A move that was long due and the previous leadership failed to deliver.
Therefore, surprises may appear.
Trump and Tariffs
The protectionism measures currently in the United States, coupled with the recent tax reform, makes the USD difficult to trade. While the logic would say that the U.S. companies would repatriate the dollars, thus creating a dollar shortage, that didn’t happen.
As for the tariffs, they create deficit imbalances and put pressure on the dollar. Therefore, the market needs more time before deciding what to do next.
There are plenty of reasons to expect 2018 to be a lively year on the Forex market. If so far the market consolidated, it may be just the quite range before a big trend.
With no important economic news left for the week, traders will watch technical levels closely.
Also published on Medium.