FXstreet.com (Barcelona) - The friendly environment enjoyed by risk-averse currencies such as the Japanese Yen or the Swiss Franc is definitely in decay, as the FX market continues its transition from ultra-low/conservative volatility levels from late in 2012 to much greater price moves this year. The Euro is one of the major beneficiaries from this new exciting FX market.
Perhaps some traders who suffered the mundane and ridiculous ranges not long ago may still be scratching their eyes not believing the number of potential trades the FX market is now offering, as with volatility, comes money-making opportunities. As we head towards the close of the week, the key question is: Is the risk-on behavior here to stay?
The indications from both fundamentals and technicals, seem to point at decent chances that risky assets will continue charging higher, in detriment of Yen, Swissy and to some extent, the US Dollar, despite yesterday's housing and employment data read-outs were quite conclusive to suggest a significant pick-up in housing and jobs; these are precisely the same sectors that the Fed wants to see recovered before abandoning its aggressive open-ended easing policies. Be watchful at hints in crescendo should these indicators continue to climb, as the battle between Fed's doves and hawks remains tight. For now though, the USD still has the 'ugly' tag attached to it, more so with the current risk appetite in place.
Valeria Bednarik, chief analyst at FXstreet.com, notes: "The crisis that started back in 2007 there, and the following recovery, was 100% dependent on both sectors of the economy. In fact, both housing and employments are the reason of QE and low rates in the US. Continued improvement in both, will ultimately be translated in dollar strength, yet for now, is only feeding risk appetite: American indexes closed at 5y highs, helping drove the greenback and the yen lower against most rivals."
For now, we have a well-supported Euro vs. USD, in the proximity of 1.34, and enjoying, as BK Asset Management co-founder Boris Schlossberg, calls it, the benefits of a torrid climb in the EUR/CHF - "The rally in EUR/CHF has been nothing short of astounding as the pair has now tacked on more than 350 points since the start of the year. The short covering squeeze has been relentless..." In Asian hours, normally a time for the pair to rest, the rally has overstretched as high as 1.2565.
From a technical perspective, the EUR is faced with 1.34 USD as the next key resistance. Sean Lee, founder at FXWW, thinks that "the pair should now find a base near the prior short-term highs at 1.3310." His target is for a move towards 1.3435/50. He tips at possible increase on volatility inside the range, depending on what happens in the main EUR crosses.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.