MARKET WATCH


FX


UNUSUAL CURRENCY MARKET STABILITY


How long can the forex market remain indifferent to the exceptionally large deluge of headlines on trade wars, geopolitical risk and other topics that could unsettle the global economy?


The year 2018 looks set to be the ninth consecutive year of global economic expansion, with many saying the world has at last moved past the long shadow cast by the global economic crisis. Rising interest rates in the US and the UK, signs that other central banks may follow suit, and buoyant equity markets all suggest that the world economy, after years of unconventional stimulus, is returning to more normal patterns.


Finding Market Directions


But for currency investors, it’s not the early 2000s all over again. Indeed, looking for direction in the currency market has become increasingly challenging. Many major currency pairs remain stuck in relatively tight ranges, with realised volatility in most dollar crosses remaining low and below their 12-month averages. This is despite obvious geopolitical uncertainties and


country specific risks, to elevated


Brexit. It also stands in stark contrast


such as equity


market volatility, as measured for example by the VIX index.


Possible reasons for this relative stability in currencies are manifold: the residual impact of ultra-low monetary policy rates globally and quantitative easing; commercial banks’ reduced reliance on wholesale funding; central banks’ use


FX TRADER MAGAZINE July - September 2018 13


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