With the dust having cleared from the Swiss franc move, the Greece situation having been resolved (at least for now) and twenty central banks having now eased policy so far this year, FX volatility has been falling in the past week, like a caped fallen Madonna from a Brits Award stage. The CB CVIX index (similar basis to equities VIX) is now back at levels prevailing around the middle of December last year. Still, there is a ray of light for some currencies. Sterling has been pushing ahead over the past couple of weeks, cable having departed from the correlation between US and UK 2 year bond yields, the 1-mth rolling correlation at the lowest level for more than a year. So this goes beyond a monetary policy story. The volatility blip is likely to come from the election, as the market becomes more cognisant of the fact that the potential outcome is not just borderline, but multi-faceted. For the single currency, it’s the ECB meeting next week when we are likely to get more clarification on the form, timing and impact of the ECB’s bond buying program. And for the dollar, we are once again facing payrolls data next week, with the jobs data having been outperforming the weaker run of data from elsewhere in the economy. Finally, we have month end tomorrow falling on a Friday, which is usually a recipe for greater than normal volatility.
Before then, we have German unemployment data to get markets into the groove, together with Eurozone M3 and the second reading of UK GDP at 09:30 GMT and Eurozone confidence data at 10:00 GMT. US CPI and durable goods data will be seen at 13:30 GMT, with Japanese jobs and CPI overnight. The dollar is staring the European session slightly weaker, especially against the yen and the impression is that it needs more fuel (i.e. from firmer data) for a fresh push higher.