Search for volatility yields nothing

EUR USD (1.2735)
There were a number of events that might have stirred hopes of currency volatility among market participants yesterday: signs of a faster pace of growth in the eurozone and its implications for ECB monetary policy, for example, or a decline in risk-aversion due to the ceasefire in the Lebanon or to the relaxation of security restrictions at UK airports. But it was not to be. The euro traded a relatively narrow range. It bounced repeatedly off our 1.2710 support during the European and US sessions, completing a very visible lower border to a broad congestion area in the process. In Asia this morning, it violated that lower border to hit a low of 1.2695, but rebounded almost immediately to the current level. It is therefore possible that a downside ‘false break’ has just taken place. However, some confirmation will be required before we can consider this development as bullish.

The first problem is the lack of good nearby demand. Apart from a very distant point at 1.2420, the single-currency is very poorly supported at the moment. The second problem is the lack of volatility. There is no noticeable bias in the market; nobody is in difficulty at current levels, so there is no catalyst for a sizeable move in either direction. As a consequence, only following a renewed break above 1.2810 could the situation be labelled as positive.

USD JPY (116.45)
As in the euro, traders would have preferred to see more volatility. They foraged among the news stories – a power outage in Tokyo, Koizumi’s visit by to the Yasukuni Shrine, the upcoming US coupon payment – but there was nothing that could produce a decent price move. Although we consider the dollar stable, there is no sign of a bearish bias that could fuel a rally. Indeed, no directional bias is apparent at all. The nearby points are 116.10 and 115.55/60 to the downside, and 117.35 to the upside.

EUR JPY (148.40)
The euro scraped against the recent highs during yesterday’s session. But even in the case of a move into fresh upside territory (above 148.60), we would still expect to see immediate offers coming in at 148.75/80. Only beyond there will the going become a little easier up to 149.50. The critical level to the downside stands now at 146.10. But this point is now well defended by an intermediate point at 147.75. In case of a move to new highs, one must still expect offers to immediately emerge at 148.75.

GBP USD (1.8920)
Sterling had been one of the currencies that had caused a great deal of difficulty for traders over the last few weeks. However, Cable’s correction over recent sessions has given a chance to those who had missed out on the prior rally (or who were on the wrong side of it) to step on board with little pain. This means that, in case of a bounce, profit-taking will kick in as early as 1.9050. It also means that the risk for a correctional drift down to 1.8670 has also emerged. Earlier support stands at 1.8800.

AUD USD (0.7595)
The A$ missed a chance to build an early base yesterday when it violated our initial support. It has subsequently slipped all the way back to what is now a critical demand zone at 0.7580/90. A violation there would leave the AUD vulnerable to further downside reaction to 0.7530 or to 0.7485. Even in the case of a rebound, it will not be too easy to regain its former bullish pace due to improved supply now at 0.7655.