The EUR/USD currency pair is currently trading with a volatility of approximately 5%, with forecasts suggesting it will remain range-bound in the near term. According to Chris Turner, an FX analyst at ING, investors are increasingly turning to the Euro (EUR) for carry trades, preferring it over the more volatile Japanese Yen (JPY).
The recent trading patterns indicate that the one-month traded volatility of EUR/USD has settled near 5%. Market participants are concluding that this pair lacks significant movement potential in the immediate future. With overall volatility low, investors are showing a preference for high-yield and emerging market currencies, utilizing the Euro for carry trades that incur a cost of just 2.00%. This is notably more attractive compared to funding in US dollars, which carry a higher cost of around 3.55%.
Risk Assessment in Currency Trading
Turner highlights that funding carry trades from the Euro is perceived as less risky compared to those sourced from the Yen. The USD/JPY one-month volatility currently stands at 8.5%. Market conditions suggest that the Bank of Japan could intervene at any moment, potentially driving USD/JPY down by 2-3% in value.
Despite the current low volatility, the Eurozone data calendar appears sparse, which may lead EUR/USD to drift towards levels of 1.1555 to 1.1565 without significant market reactions. The stability in the Euro’s value is likely to continue, especially as investors navigate their options in a landscape marked by fluctuating global currency dynamics.
As the market evolves, the focus remains on how these trends will affect trading strategies and investor behavior in the coming weeks. The combination of low-cost carry trades and the preference for the Euro could shape the outlook for the EUR/USD pair significantly.
