By DailyFX - EURUSD * Vol differentials dipped significantly after testing the upside boundary
for a third and final time before falling to hover right above...

... the floor band. A
result of declining near term volatility and a comparable rise in long term vols,
underlying spot conditions look ripe for a breakout scenario. Additionally lending
to the aforementioned notion is the slight narrowing of both bands. With the spread
widened, and long terms hovering considerably above the short counters, a near term
spike in the volatility should additionally not be ruled out. The last time the
differentials were at this level, the week of September 18th, a short test to the
upside ensued with a continuation in the spot. The real test will occur as we
approach the once formidable 1.19 figure.

GBPUSD * Unlike its euro major counterpart, the pound sterling looks to remain in
neutral territory after testing the upper resistance band twice. Following a the
selloff in the past month or so, the current reading offers no indication of further
downward pressure as the underlying currency hovers above the 1.7500 floor.
Notably, short term volatilities spiked the most of all the majors while long term
vols rose slightly higher, placing short terms above for the week. Ultimately, no
clear direction or reading is presented at this moment in the underlying spot.

USDJPY * Dipping the third most among the majors, short term volatilities dipped in
the week leading to a test of the lower band as long terms remained unchanged. As a
result, with the lower band broken, the recent staid ranging environment that has
been presented in the underlying currency may be coming to an end. Additionally,
with contracting vol bands, the model is suggestive of a near term breakout. The
last time a break similar in nature occurred, during the week of June 15th, the spot
price vaulted considerably higher. Although non-directional at this point, the
suggestion remains the same as the yen approaches considerably upside resistance at
115.

USDCHF * Similar to the Japanese yen currency, short term vols dipped over the week
giving dominance to longer term counterparts. As a result, the differential has
plummeted from a second test of upside band resistance and hovers the lower band
after a slight break. With contracting parameters, one could expect a breakout
imminent in the underlying spot as it tested the 1.2950 resistance earlier in the
week. Notably, the currency has not offered a potential breakout scenario since the
week of August 23rd. With fundamental releases capping the week, short terms may
rise to lead once again, contributing to a short term spike.




By DailyFX