SUMMARY

Likely to Continue to Range Trade

- EURUSD
- GBPUSD
- USDCHF
- USDCAD

Neutral

- USDJPY
- AUDUSD

Likely to Breakout

- <none>

EUR/USD
Euro implied volatilities retested the upper band in the past week, further indicative of the current ranging environment that has been witnessed in the underlying spot.  Short term volatilities rose slightly on the week with longer term components holding steadily consistent.  As reflected in the differential, short terms still hover above longer terms.  However, with the differential narrowing, expected a potential dip in the near term.  In respect to underlying flux, short term vols may rise on approach of the formidable support of 1.1900 as we anticipate employment data at the end of the week.

GBP/USD
Similar in fashion to the euro single currency, pound sterling vols broke above the upper band as the underlying spot touched off a technically significant 1.7500 figure.  The widening differential spread looks to be attributed to short term volatility pickup as the corresponding longer term component dropped in the week.  The resultant widening takes second place among the majors this week, as the spread seems to be dipping below the upper resistance once again.  Further rises short term implieds would not be a surprise as the broader market anticipates U.S. employment data on Friday.

USD/JPY
Relatively staid, and ultimately posing the least change in differentials, Japanese yen vols remain in neutral territory for the week.  However, with the recent consolidation in the underlying and suggestive narrowing of the bands, a near term move in the currency major may not be a foregone conclusion.  Notably, vols actually dipped on the week versus short term increases across the board.  At this point in time, with anticipated retail data on the horizon, short terms may experience a jump as the underlying spot tests resistance at the 114 figure.

USD/CHF
Previously consolidating, the Swissie major looks to experience a near term pickup as vols have spiked above the upper resistance band.  However, with the spread differential looking to regress back to neutrality, the underlying spot may return to a broader range bound environment.  Short term vols rose in line with subsequent majors, higher on the week, as the longer term remained stagnant, moving lower only incrementally.  Much like most of the market as we head into weekend, vols may experience a jump helped by fundamental influences, albeit temporarily.

USD/CAD
Short term vols rose the most among the majors this week, while longer term components remained unchanged.  Nevertheless, the widening spread contributed to a spike in our proprietary model, well above the upper band location and indicative of the recent three session jump in the underlying currency.  As a result, a considerable dip in implieds looks to be expected as the differential turns back towards neutrality.  However, further increases in the differential should not be discounted as our bands widen, suggestive of further builds in near term vols.  Subsequently, the underlying continues to downwardly range trade leaving further potential for new lows.

AUD/USD
Presenting the only decline in the spread for the week, overall Aussie vol differentials dipped in light of incremental increases in the separate components.  Currently, longer term figures reside above the shorter term as the visual depiction plateaus between narrowing bands.  Suggestive of non-directional environment, the underlying spot looks to be hovering the support level of a potential turn in the previous downward channel at 0.7550.  Subsequently, like most majors, volatilities remain currently quiet as fundamental factors could swing the spread in either direction.

Richard Lee is a Currency Strategist at FXCM.