By DailyFX – Ranging Environment Looks Favored After Weekly Upticks – EURUSD. Similar to Swissie vols during the week, Euro short term implieds shot through… … the roof.

Breaking above the upper barrier, the indicator is
suggestive of ranging conditions in the underlying currency and is ripe
for a retracement back to below the upper band. With thinned holiday
trading and position squaring by traders, vols spiked the most of all
the majors and is at a pretty significant level. The last 3 times the
spread spiked above to this level, the underlying currency witnessed
sharp near term moves in the price action as the short term fell
precipitously.

GBPUSD
Pound short term vols rose against long term counterparts to continue
higher compared to last week's action. Now just below the upper
barrier, the currency pair looks ripe for ranging following the short
term uptick during the week. With the narrowest spread of all the
majors, it should be interesting heading into the first week of trading
for the New Year as a sudden change could be suggestive of either
scenario. As a result, the underlying currency looks to remain in a
restricted move between 1.7300 and 1.7800.

USDJPY
Japanese yen implied volatilities remained relatively staid for the
week, set aside a temporary spike in the near term due to position
unwinding at the tailend of 2005. As of right now, the implied spread
remains neutral and continues to suggest a range bound environment.
However, with vols on the dip, the spread looks to suggest further
declines in the currency pair as the indicator approaches the lower
barrier. A slight narrowing of the bands looks to be additionally
suggestive of an imminent breakout scenario. At this point, a break
below 116 would be needed in confirming any strong downside directional
bias.

By DailyFX

euro single currency is set for a
considerable breakout as implied differentials dropped off in… Read the rest of this entry »