Forex Thoughts : Think Like YODA in Yo-Yo Markets

Volatility has been off the charts in the QE world which is understandable because it is, afterall, a supply shock to the monetary system and

So we have the EURUSD trading at an average range of 0.014 daily this year, about twice of its average range of 0.0075 for the entire of 2014, in whippy markets that are under attack from all fronts – robo-algo traders, central bankers and regulators clamping down on rogue trading desks.

Everyday is a kamikaze day with volatility taking centre-stage for a good excuse and, I guess, no more thoughts of manipulation because all the fines have been paid or are being meted out to be paid.

That also implies that trading desks are heavily crippled in their risk taking which makes it necessary to make money from other avenues – through excessive volatility ! as seen in the EURUSD 1M ATM vols chart below, trading well above trend at highs not seen since 2012.

eur 1m vols

And economic headlines hardly matter even if they had the best housing starts number last night in 7 years or if jobless claims have fallen to 15 year lows, the reports will give the reasons for the FX moves as they can explain it best.

dxy INDEXChart of the DXY (USD Index) Spot showing the USD weakening and strengthening with good economic news

Daily volatility is necessary for profits and is created as central banks run out of assets to buy. Central banks, sheepish about their part in the whole affair, can only keep quiet.

In fact, central banks are guilty for creating volatility as the Telegraph alleges that hedge funds got inside information from the ECB at a conference in London hours before the news hit the street just yesterday which is rather scandalous.

“Telegraph: Hedge funds got early access to information that prompted euro slide

Individuals at a London conference heard the news that the ECB would be ramping up its QE scheme hours before the rest of the market….” http://www.telegraph.co.uk/finance/economics/11616112/Hedge-funds-got-early-access-to-information-that-prompted-euro-slide.html

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