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Low volatility environment for the Greenback following positive and negative economic releases

USD - United States Dollar

The US dollar rebounded last Thursday following further weak Euro-area Service PMIs (52.5 versus the 53.1 expected). Furthermore, the Greenback kept a bid after the US retail sales came in strong. On top of that, Dallas Federal Reserve President Robert Kaplan emphasized better than expected economic data. He said that he, didn't see any reason to change the fed's policy stance. This might infer that the dovish turn from the Fed is not just about fighting downside risks, but it is also about generating higher inflation.

Additionally, data released last Thursday showed the number of Americans filing for unemployment benefits fell to its lowest level in almost 50 years, and US employment numbers continued to get better. The four-week moving average of initial claims fell to 201, which is below last week’s reading of 250 and it is the lowest reading since November 1969.

Today though, the National Association of Realtors released new data, and the US dollar index fell 0.08 percent following existing home sales numbers, which retreated in March, following February’s surge of sales. Each of the four major US regions saw a drop-off in sales.

Key Movers

Volatility decreased as market participants were reluctant to take positions in the FX markets. This may be due to the latest actions by the Fed: when volatility surged by the end of last year, the Fed said it was determined to push forward with higher interest rates with quantitative tightening; however, it has reversed its position over the past three months. This situation provides room for market participants to plan and removes stress on volatility.

Currency pairs such as the EUR/USD are extremely low in volatility, and this phenomenon is probably the result of sophisticated market participants selling volatility. However, betting on low volatility to stay depressed is dangerous, because there is a well-established history of volatility accelerating suddenly in a “spike” after being dormant for an extended time.

Expected Ranges

USD/CAD: 1.3328 - 1.3407 ▼

EUR/USD: 1.1230 - 1.1266 ▲

GBP/USD: 1.2941 - 1.3005 ▼

AUD/USD: 0.7110 - 0.7141 ▼

NZD/USD: 0.6657 - 0.6679 ▼