Forex Flash: The unifying range-trading environment - HSBC

FXstreet.com (Barcelona) - HSBC strategists note the absence of a one-size-fits-all model for FX market behaviour at present, and this lack of prospective movement means we have a tendency is to drift towards a range-trading environment.

They write, “Consider the recent example of those who sold the EUR on the basis that the ECB appeared more likely to cut interest rates. For a while, the world felt simple. Sell the EUR because rates are going lower - we were back to the good old days. But the EUR did not continue to fall, recovering some ground even though there had not been any marked reappraisal of ECB rate cut expectations.”

They see that this typifies the problem we are currently facing.Additionally, forecasters, investors and traders are struggling to find a clear explanation for currency moves, and so position sizes become smaller, stops tighter, and profits are taken more quickly. As a result, currencies are drifting into ranges. They add, “Even those exchange rates which enjoyed strong trends during Q1 13 such as GBP-USD and USD-JPY have glided into sideways patterns. For now, the best strategy is not to claim some neat unifying explanation for all currencies but to recognise the lack of clarity and play the ranges until the world of FX becomes more straightforward again.”