Ultra-low volatility
With tensions in the Ukraine mounting, the US federal reserve preparing to tighten and emerging markets showing signs of economic recovery, one would expect a horde of FX related trading opportunities. However, that has not been the story of 2014. Baring some fireworks in CNY and UAH, currency trading has been range-bound and notably boring.
Volatility in the G10 has all but dried up and EM FX given current trading patterns, mean-revision and yield seeking strategy, continued to outperform. As a result, momentum strategies have significantly underperformed (see Parkers Currency Manager Index), while a basic carry basket of liquid high yielders (BRL, TRY, INR) and low yielding funding (USD, JPY, CHF) currencies would have resulted in an average annual excess returns of 17.50% with an impressive sharp ratio of 2.01%. Given the muted reaction to events so far, we don’t expect a pick-up in volatility presently and would continue to buy into carry fuel trades.
Read the full report: FX Research
Swissquote