© Reuters. Currency Markets Are So Sleepy That HSBC Is Out of New Ideas
(Bloomberg) — Foreign-exchange markets are so quiet that HSBC’s strategists are drawing a blank.
“We are in an unusual position in this month’s FX Tactician, deciding for the first time not to introduce a new trade idea for the month ahead,’’ Daragh Maher, the bank’s U.S. head of currency strategy, wrote in a note to clients. “In part, this reflects the lack of volatility evident in G10 FX markets which means we have neither hit our take-profit levels nor our stop-loss in the trades we entered in January, February and March.’’
The lack of movement in the markets means that implied three-month volatility for G7 currencies is running two standard deviations below its long-run average, according to an index from JPMorgan (NYSE:). The lack of gyrations bedevils traders taking a position on directional swings between pairs, and pushed influential investors to wager on continued tranquility to generate returns in a low-volatility environment.
Adding insult to injury: the lone source of shockwaves in 2019 — the British pound — has seen market expectations for near-term swings crater after the European Union and U.K. agreed to a Brexit deadline extension. No wonder currency-only hedge funds are a dying breed.
HSBC still has confidence in its previous recommendations, Maher said in his note, which include selling the dollar against the greenback, buying the U.S. currency versus the Canadian , and shorting the euro relative to the Japanese yen. David Bloom, head of global foreign-exchange strategy at the bank, adds that borrowing euros to buy dollars is the “greatest carry trade in the world” in light of the interest rate differential.
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