EUR/USD fluctuates around 5% with the pair staying within a range – ING
EUR/USD Maintains Low Volatility as Euro Becomes Preferred Funding Currency
The EUR/USD currency pair is experiencing subdued volatility, holding steady around 5%. Analysts, including Chris Turner from ING, anticipate that the pair will continue to trade within a narrow range, as investors increasingly choose the Euro over the Japanese Yen for funding carry trades.
Euro Gains Popularity for Cost-Effective Carry Trades
According to Turner, "Volatility for one-month EUR/USD trades remains low, hovering near 5%. Many market participants expect the pair to stay confined within its current range in the short term. With risk appetite favoring high-yield and emerging market currencies, investors are opting to use the Euro as a funding source for carry trades, benefiting from a relatively low implied yield of 2.00%, compared to the US dollar's 3.55%."
He adds, "Utilizing the Euro for carry trades is perceived as less risky than using the Yen, especially since USD/JPY one-month volatility is higher at 8.5%. Additionally, potential interventions by the Bank of Japan could cause sudden drops of 2-3% in USD/JPY, increasing the risk for Yen-funded trades."
With the Eurozone economic calendar showing few significant events, EUR/USD may gradually move toward the 1.1555/65 range without attracting much attention.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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