Market Minutes Overview:
- You know it’s a quiet market when nothing is happening. But that point of view really hits home when markets stay quiet when things are happening.
- US Treasury yields are down across the board, not exactly the type of price action you’d see if inflation fears were running rampant.
- If neither the ECB rate decision nor the US inflation report could rouse activity in markets, there are few tangible reasons to believe that the upcoming slate of ‘high’ rated event risk will move the needle either.
It’s a Snooze Fest
You know it’s a quiet market when nothing is happening. But that point of view really hits home when markets stay quiet when things are happening.
Today, the European Central Bank’s June policy meeting produced a new Staff Economic Projections as well as a growing rift among policymakers regarding the central bank’s asset purchase program.
Meanwhile, EUR/USD rates are up by +0.01% on the day – you have to squint to see the price change on a candlestick chart; it’s a flat line day-to-day on a line chart. Not even the May US inflation report could awaken markets from their relative pre-summer slumber.
Earlier this week it was noted that “it feels like the ‘historically standard’ summer lull prior to a wave of significant event risk.” That was far too optimistic; volatility has stayed low, and when it has ticked higher, it has failed to do so in any sort of meaningful way.
GVZ, MOVE, OVX, & VIX Technical Analysis: Daily Price Chart (March 10 to June 10, 2021) (Chart 1)
Measures of volatility remain down across the board. Measured to a base on March 10, exactly three months ago, the VIX (stock volatility) is now down by more than -27%, OVX (oil volatility) is off by nearly -15%, MOVE (Treasuries volatility) is down over -16%, and GVZ (gold volatility) has contracted by nearly -19%.
Lower volatility environments typically cater to few breakouts and more rangebound trading conditions; pairs in consolidation will need catalysts to leave their ranges.
Video Technical Notes: EUR/USD
- EUR/USD rates are still holding above former consolidation resistance that defined price action starting in mid-April. Momentum continues to neutralize, with the pair intertwined among daily 5-, 8-, 13-, and 21-EMA envelope, which is still in neither bearish nor bullish sequential order. Daily MACD is falling while above its signal line, and daily Slow Stochastics are turning higher but still below their median line. The current flagging pattern offers a defined range at present time.
US Dollar at Risk
It didn’t really mattert o markets that headline inflation in the US has moved up to +5% y/y; traders seem to care more about the Fed’s resolute point of view that inflation is “largely transitory.”
US Treasury yields are down across the board, not exactly the type of price action you’d see if inflation fears were running rampant.
US real yields, which have been stuck in negative territory and moving sideways, may be pressured again as the drop in nominal yields outpaces the pullback in inflation expectations.
US Treasury Yield Curve (1-year to 30-years) (June 2020 to June 2021) (Chart 2)
Quiet Calendar to End the Week
If neither the ECB rate decision nor the US inflation report could rouse activity in FX markets, and if the late news that Iran’s oil would be returning to global supplies couldn’t provoke a sustained move in energy markets, there are few tangible reasons to believe that the upcoming slate of ‘high’ rated event risk will move the needle either.
In fact, regardless of market conditions, that’s a fairly timeless statement (not moving the needle) to be made about the upcoming data releases: markets tend to not care about old data releases like the upcoming UK GDP report, which covers April (two months ago!), nor consumer confidence readings (which historically have served as contemporaneous indicators to US equity market performance).
DailyFX Economic Calendar, ‘High’ Rate Events, Next 48-hours (Table 1)
— Written by Christopher Vecchio, CFA, Senior Currency Strategist