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Jignesh Davda

EUR/USD Volatility Slows Dramatically This Week

EUR/USD has moved 54 pips from high to low in the week thus far. This is against a typical weekly high to low movement of about 140 pips. To put things into perspective, this is the lowest weekly range in 15 years. Unless of course, the pair makes a run for fresh weekly highs or lows later today.

I actually don’t think that is even a good representation of how much volatility has slowed. The last time the pair traded in such a small range was during the summer of 2004. Seasonality patterns have shown a general decrease in volatility in the summer months which makes it that much more peculiar to see such a small range at this time of the year.

However, we might see a strong move later in the session which could break the pair out of the weekly range. It’s still too early to tell if the range will hold. Especially with several data releases scheduled on the economic calendar.

The highlight in terms of economic releases will tend to be the US retail sales report which will be out in early North American trading. Analysts are expecting sales to rebound 0.1% in October after declining 0.3% in the prior month. Ahead of the retail sales report, inflation data will be released from the Euro area.


Technical Analysis

EUR/USD is showing some upward momentum and has scaled above the 20-period moving average on a 4-hour chart for the first time since dipping below it near the start of the month.

The pair still faces a hurdle from the 50-day moving average which comes in at 1.1040, but it is certainly looking like the pair has some bullish potential.

EURUSD 4-Hour Chart

The 1.1000 level has been important throughout the week and therefore I see it as critical support for the session ahead.

I think the decline in volatility signals caution. Often market volatility declines ahead of a major breakout. If the pair starts to make a directional move with momentum behind it, in either direction, I’d look to trade with the direction rather than fade it.

Bottom Line

  • EUR/USD remains stuck in a range but is showing a bit of upward momentum.
  • Retail sales figures will be released out of the US later today and stand to drive some volatility.
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