EUR/USD, USD/CAD, AUD/JPY – FOREX VOLATILITY
Earlier this week we highlighted that forex volatility risked rising owing to uncertainty surrounding this weekend’s long-awaited G20 Summit meeting in Osaka, Japan. With the headline meeting between US President Trump and Chinese President Xi still looming and financial markets anxiously awaiting its result, in addition to a barrage of global economic data readings, the possibility of currency volatility climbing higher remains – particularly in spot EUR/USD, USD/CAD and AUD/JPY.
FOREX ECONOMIC CALENDAR – USD, EUR, CAD, AUD, JPY
Check out the DailyFX Economic Calendar for a comprehensive list of upcoming event risk and economic data releases impacting major markets.
Aside from G20 Summit headlines threatening to move markets as news crosses the wires, several high-impact economic indicators are scheduled for release throughout next week. Complementing any development from the Trump-Xi trade meeting, appetite for risk looks to also be set by China’s Manufacturing PMI due for release Sunday at 1:00 GMT. The gauge could weigh heavily on the sentiment-geared AUD/JPY which looks to gyrate further in anticipation of and reaction to Tuesday’s July RBA meeting with Australia’s central bank slated to provide its latest monetary policy update.
AUD/JPY PRICE CHART: DAILY TIME FRAME (DECEMBER 28, 2018 TO JUNE 28, 2019)
Spot AUD/JPY is expected to range between 74.362-76.630 with a 68 percent statistical probability over the next seven days judging by the currency pair’s 1-week implied volatility reading of 10.85 percent. Although, the 50.0 percent retracement and 61.8 percent Fibonacci levels are eyed as near-side technical resistance and support respectively. While spot AUD/JPY appears to have printed a breakout above bearish downtrend resistance, the currency pair looks like it may lose upward momentum as the cross rate approaches the 76.000 handle.
A relatively hawkish message conveyed by the RBA next week could easily confirm upside bias that has developed recently and send spot AUD/JPY toward the upper-bound of its 1-standard deviation trading range. This scenario is less-than-likely according to overnight swaps pricing, however, which currently see a 73.9 percent chance that the RBA cuts interest rates again.
EUR/USD PRICE CHART: DAILY TIME FRAME (DECEMBER 21, 2018 TO JUNE 28, 2019)
The Euro and US Dollar also look ripe for volatility next week with an update on Germany’s labor market on early Tuesday at 7:55 GMT and the release of the Institute of Supply Management’s US Manufacturing PMI shortly after at 14:00 GMT. According to the 1-week implied volatility reading of 6.28 percent, spot EUR/USD is estimated to fluctuate between 1.1280-1.1478 next week. Technical resistance posed by the 61.8% Fibonacci retracement of the currency pair’s year-to-date trading range near the 1.14 handle, which has previously served as a major confluence level, could keep upside in spot EUR/USD at bay.
EUR/USD price action could be stirred further later in the week as traders react to the closely-monitored US Nonfarm Payroll (NFP) data due for release Friday at 12:30 GMT. Another surprise to the downside following last month’s NFP report will likely echo bullish conviction that appears to have developed since the start of the month. However, an upbeat US jobs report threatens to send EUR/USD swooning with potential to test support at the 1.1300 price level.
That being said, spot EUR/USD performance over the short-term will likely be driven largely by the market’s expectation for the Federal Reserve to make a move on rates. According to overnight swaps, rate traders are currently pricing a 25-basis point reduction in the central bank’s policy interest rate as a near-certainty with an additional 24.0 percent probability of a 50-basis point reduction in Fed’s benchmark policy rate. Consequently, upbeat US economic data risks reducing the market’s expectation that the Fed will cut rates at its next FOMC meeting and bolstering the greenback in turn.
USD/CAD PRICE CHART: DAILY TIME FRAME (SEPTEMBER 05, 2018 TO JUNE 28, 2019)
With spot USD/CAD testing year-to-date lows, price action could quickly accelerate. Forex traders might expect spot USD/CAD to swing between 1.2970-1.3206 next week according to the currency pair’s 1-week implied volatility of 6.53 percent, which is the highest reading since March 5. Along with the aforementioned US economic data and G20 Summit impact on the greenback, the loonie will look to the Canadian Manufacturing PMI Tuesday at 13:30 GMT and update on Canada’s labor market Friday at 12:30 GMT. Also, in consideration of the generally strong relationship between oil prices and the Canadian Dollar, crude performance has potential to weigh on CAD next week.
As such, USD/CAD bulls will likely attempt to cling on to support near the 1.3100 price level and 61.8 percent Fibonacci retracement before confirming fresh lows for 2019. If this area of consolidation fails to hold, bears will likely target the 1.3000 handle which aligns closely with the 1-standard deviation lower bound of the option implied trading range and 76.4 percent Fib. Conversely, the door to 1.3200 could be opened up if bulls can reclaim the 1.3100 area – a move that likely requires fundamental conviction possibly driven by a resurging US Dollar in response to better-than-expected US data and lower expectations for Fed rate cuts.
Connect with @RichDvorakFX on Twitter for real-time market insight