I think maybe fatdog1 was referring more to the index ftrs regards those comments Anna??.....might be wrong
but one or two of the issues affecting the FX markets will undoubtedly have a bearing on instruments across the board........
structural factors have definitely impacted FX prices over the past 2-3yrs, not surprising that ranges have contracted really....I guess the main culprits being interest yield spreads!
certainly if the FX pairs/crosses suffer smaller carry trade margins, we'll experience heavier range bound markets & lower volatility....the graph below highlights that issue quite well.........
marry that up with increased Central Bank exposure/jawboning every time their repective currencies
skew outside acceptable boundaries, & include the uptick-popularity of FX via the retail sector on the back of aggressive marketing from the industry bods (shops etc), & you have yourself a heady cocktail.........
any one of those major factors alone would be enough to slow the ship.....but all 3 on the crib sheet, little wonder the volatility has subsided.....
you get a rush of fresh & constant inflow of $$'s into the mix & that will unviel a shoal of buyers & sellers at each important number on the charts.....in my book that equals less choppy markets & increased spike potential during below par liquidity periods..........
the only item which will keep these instruments bouyant over the medium term will be the focus of interest rate differentials.....or rather the shift in them
as long as there's differing global economic positioning around inflation, growth expectations & internal deficit margins, then we ought to experience semi-decent periods of price wiggles........that will go some way to keeping the currency & bond kiddies on their toes!.....if that ever slows though, we're really in for some heavy snooze time!!
I guess as more Central Banks look to diversify out of $$'s over the mid term, it might create a few more sparks across all the market candidates........
but I wouldn't hold your breath to a swift return to the heady heights of daily ranges extremes of a couple yrs back - not if the recent collection of figures below is anything to go by........
harks back to what we were saying in 4th quarter 05......'flexibility & reactive strategy implementation are the priorities'.......if not, your bottom line will reflect the unwillingness to accept that change in market behaviour!
