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FX About to Get Volatile?

FX About to Get Volatile?

In many respects the FX majors have traded in rather tranquil trends the past few months. Yes, there have been the occasional hiccups and surprises, and we have seen days of large reversals and even chatter about a ‘fat finger’ early this week with the GBP The GBP The GBP is the official currency of the United Kingdom. The GBP is a major currency and currently ra... More is the official currency of the United Kingdom. The GBP is a major currency and currently ra... More , but there have been no earth shattering events. Trading has remained fairly calm. Ranges have been tested, but have not really broken free and caused havoc in the marketplace. The question is if this is about to change?

With the Federal Reserve The Federal Reserve The Federal Reserve The Federal Reserve is the Central Bank of the United States of America and sets the monetary policy When used by traders and investors monetary policy When used by traders and investors monetary policy When used by traders and investors monetary policy usually refers to Central Bank policy concerning ... More usually refers to Central Bank policy concerning ... More usually refers to Central Bank policy concerning ... More ... More is the Central Bank of the United States of America and sets the monetary policy... More is the Central Bank of the United States of America and sets the monetary policy... More now put on the side because of the poor Non-Farm Employment Change numbers last week and with a lack of ammunition to implement an interest rate hike, the Fed The Federal Reserve is the Central Bank of the United States of America and sets the monetary policy... More is just another bystander in the world of FX. And this has set the plate nicely for the EUR The EUR The EUR is the official currency of the European Union. Presently 19 out of the 28 collective  nati... More is the official currency of the European Union. Presently 19 out of the 28 collective  nati... More and GBP and even the JPY The official currency of Japan is the JPY The official currency of Japan is the JPY which is also knows as the Japanese Yen The official currency of Japan is the JPY which is also knows as the Japanese Yen The official currency of Japan is the JPY which is also knows as the Japanese Yen to investors and t... More to investors and t... More to investors and t... More which is also knows as the Japanese Yen to investors and t... More to really be considered by a vast number of investors as the shine of the USD The USD The USD is the official currency of the United States of America. It is the largest reserve currency... More is the official currency of the United States of America. It is the largest reserve currency... More fades.

The EUR does not look like it will get any extra stimulus via the ECB The European Central Bank The European Central Bank, ECB The European Central Bank, ECB, is the Central Bank of the European Union and sets the monetary poli... More , is the Central Bank of the European Union and sets the monetary poli... More , ECB, is the Central Bank of the European Union and sets the monetary poli... More via a change in interest rates from Mario Draghi either. The ECB looks intent on keeping its current policy intact and actually looking at the results that its member nations garner these next couple of months. Talk about a possible negative interest rate from the ECB has been put to bed.

But is that true? The question needs to be asked not so much because of things happening within the terrain of the ECB, but because of what is going to take place in the U.K. on the 23rd of June. The potential of a ‘leave’ vote during the Brexit referendum could open the door for mayhem in all FX spheres. Both the EUR and GBP have done relatively well the past week of trading. Mario Draghi in Brussels today told a gathered audience that the ECB has done all it can for the moment, but now needs the help of governments within the E.U. to effectively create greater growth.

While Germany turned in a better Trade Balance number today it certainly isn’t enough to say that Europe is about to escape stagnation The term stagnation The term stagnation The term stagnation in economics means a period of time in which an economy is achieving little grow... More in economics means a period of time in which an economy is achieving little grow... More in economics means a period of time in which an economy is achieving little grow... More . However, with a weakened Federal Reserve, the EUR will be a tempting buy if the ECB maintains its current interest rate policy. The problem for the EUR and other currencies is what would happen if the U.K. decides to leave the E.U. and no one is really able to calculate what the math is for this riddle. Quantifying what if’s are not an easy task, nor one that investors want to merrily decipher. However there is no doubt that the financial institutions in Europe that have extensive business in the U.K. will have to calibrate the potential of such impacts.

Volatility is certain to break out in the FX markets as the Brexit vote approaches closer and traders become more nervous. The question is if the volatility will be able to be managed and is a tradable endeavour, or if the volatility will become one in which it is only a playground for those who love pure speculation? The EUR looks like it can be a long term buy potentially against the USD if the Fed The Federal Reserve is the Central Bank of the United States of America and sets the monetary policy... More really has to wait until the late summer or early fall to tinker with interest rates. However, the fear of a Brexit will also have an affect on the value of the EUR and it is not exactly known what the long-term results would be. Certainly if the U.K. were to pull out of the E.U. the impact could be negative for the European Union just as much as it is for the U.K. if the two sides do not act immediately to renegotiate their working agreements for trade and cooperation. And no one fully comprehends the mechanics of such a proposition.

Asia also is part of this equation. The JPY has been getting stronger versus the USD in recent trading. The Japan government is not happy about a stronger JPY, but it might not be able to do much about this if Asian investors feel the need to park their money in what they perceive as safe havens – because the JPY will draw a crowd of takers if this continues to transpire. The Japanese economy continues to sputter and most attempts at intervention by the BoJ have only had a limited effect. Add a potential Brexit to the equation and what could possibly happen in Asia because of this and you have the makings of a volatile mix.

Which brings us back full circle to the predicament of lacklustre economic data globally, while the Brexit vote is the focus for many, global investors are also worried about signs of potential recession A recession A recession A recession in economic terms is a period of downturn when growth is in decline for a sustained peri... More in economic terms is a period of downturn when growth is in decline for a sustained peri... More in economic terms is a period of downturn when growth is in decline for a sustained peri... More in the U.S. and a continued slowdown in China. The combination of these potential events is a loud ticking clock and the results could be enough to make FX trading this summer more intense. Investors tend to like long and quiet summers, but with the coming vote in the U.K. and global economic data – including a U.S. election this November, there will be plenty of circumstances for currency traders to be anxious. Opportunities are certain to be many and traders will have to manage their risk wisely in order to take advantage of them.