As we wrap up the first quarter of the year, Deutsche Bank has a look at the euro and notes that EUR/USD volatility and the range of the pair has been surprisingly narrow, particularly given the volatility in fixed income.
One of our favourite ways of thinking about the FX outlook is the ten big figure rule. All this says is that EUR/USD needs to achieve at least a ten big figure max-min range over the course of a year," writes FX strategist George Saravelos. "This is simply in line with historical behaviour: even in extremely low volatility environments EUR/USD has moved by at least ten big figures with the exception of only one year."
DB highlights how the median range is 17 big figures for a year and that the year-to-date range in EUR/USD so far this year is minuscule.
One reason Saravelos highlights for the lack of directional trading in the pair is that rate differentials in the US and Europe have moved in tandem and the market sorts out how central banks will tackle inflation.
For traders, there's a good argument to go with a break on either side but for now, Deutsche Bank sees the risks to the upside.
"Our FX forecasts would be most consistent with a 1.05-1.20 range for the year, with the key catalyst behind this being a dovish Fed pivot before the ECB," Saravelos writes.
