UPDATE: EUR/USD volatility has surged to nearly 5% as investors pivot towards the Euro for low-cost carry trades, impacting the foreign exchange market significantly. ING’s FX analyst Chris Turner emphasizes that this trend indicates a preference for the Euro over the more volatile Japanese Yen amidst a backdrop of muted trading conditions.
Currently, the EUR/USD pair remains range-bound, with one-month traded volatility hovering around 5%. Analysts suggest that this stability reflects investors’ inclination to fund carry trades out of the Euro, which is at a cost of just 2.00%, compared to 3.55% for the U.S. dollar. The lower cost makes the Euro an attractive option, especially as high-yield and emerging market currencies gain traction.
Turner warns that funding carry trades out of the Euro is perceived as less risky than sourcing from the Yen. The volatility of USD/JPY is currently at 8.5%, and the Bank of Japan could intervene at any moment, which may drive USD/JPY down by 2-3%. As such, the market is watching closely for any sudden shifts.
With the Eurozone economic data calendar appearing sparse, the EUR/USD pair is expected to drift towards the 1.1555/65 level without significant fanfare. This trending market behavior is crucial for investors and traders alike, as it offers insights into potential profit opportunities and risk management strategies.
As the situation develops, market participants are advised to keep a close eye on the Euro’s performance against other currencies, especially in light of the ongoing shifts in global economic policies and investor sentiment.
Stay tuned for more updates on this evolving situation, as the EUR/USD pair continues to play a pivotal role in the foreign exchange landscape.