A mostly ranging FX market awaits political solutions
Price based indicators
* FX-O-meters: Trends continued to lose strength last week which is hardly surprising as market risk are driven by political events. Currently no currency pairs are severely stretched, tough EUR/NOK, EUR/CAD and EUR/USD should be watched as they are quite close to 2 standard deviation stretches.
* T3 trend model: Our systematic setup recommends going long EUR/CAD for a second week. During the recent week the three recommended trades scored an aggregated gain of 1.19%.
SEB Risk appetite index
* RAI headed higher Wednesday through Friday. This is a clear indication that market players are taking the stalemate in the US quite light and expect a solution before the economy is damaged. Falling VIX and rising EUR/CHF were, as expected, the main drivers of the move higher in RAI.
Short-term fair values
* EUR/SEK is on the verge of a severe SEK undervaluation as the pair closed just below its upper 2 standard deviation signal band. EUR/NOK on the other hand trades slightly below its STFV. NOK/SEK is thus also trading just below its upper 2 standard deviation band, indicating that near-term valuation pressure is for the downside. EUR/USD opened the day at its upper 1 standard deviation band and STFV has headed lower the past two days – if this continues it will add further downside pressure.
Volatility
* Implied volatilities headed lower previous week. Looking at the spreads between implied and realized volatility EUR/USD still stand out. Though the spread has narrowed during last week as realized volatility fell back towards the implied volatility.
Speculative positioning (based on CFTC’s COT reports)
* Still no new report. Due to the partial shutdown of the US government no Commitment of traders report has been published since Sep 27.
Read the full report: Market Research
SEB