Can you guess the market direction today?
Skerdian Meta • 2 min read
The forex market has been acting very strangely today if you compare it to the recent times, when the moves have been huge and all the forex pairs that are supposed to move in the same direction have done so. Today looks a bit different. The volatility is very low with only a couple of forex pairs managing to make 50-60 pip moves and the correlation has gone out of the window.
What correlation you´d ask. We know that some currencies and forex pairs are correlated. When there is a risk-on sentiment in the forex market EUR/USD, GBP/USD, AUD/USD, NZD/USD and USD/CAD all move up and USD/JPY goes down. Today AUD/USD and NZD/USD are crawling higher and USD/JPY is going up too. This means that there is a risk-on sentiment in the forex market. But, EUR/USD and GBP/USD keep sliding down, which isn´t supposed to happen when there is risk appetite in the forex market.
EUR/USD has been trading in a very tight range today
Another connection which has failed today is the correlation between the commodity currencies. The Aussie (AUD), the Kiwi (NZD) and the Loonie (CAD) all go in the same direction most of the time. Today though, the southern pacific Dollars are enjoying some great demand while the Loonie is struggling. Despite the oil price which has made some reasonable gains, the CAD is still not taking advantage, so there you go another correlation fail.
Some forex traders nd forex analysts argue that this is due to the hangover from the US non-farm payroll Friday. That might be one of the reasons, but the main reasons for this in my opinion, is that we are on the holiday season and it is Monday. Mondays are usually quiet and the forex traders don´t know which direction to take, so the forex market runs around like a headless chicken. Besides that, most of the European and the North American traders are on their summer holidays. That leaves the market pretty numb during August. We´ve seen this kind of price action last August as well.