There have been a multitude of fundamental factors that have been driving markets all over the place in 2015. However, just in the past few weeks this volatility has been even more elevated than normal. Analysis of the high to low pip (or tick) range of the key markets shows that if timing is right, that trading these markets can be very lucrative.
- The ECB has engaged a €1.1trillion programme of Quantitative Easing.
- The Federal Reserve changed its stance to being more data dependent, meaning that ever economic release from the US has an added level of significance for the potential to drive monetary policy.
- Ongoing negotiations between Greece and its creditors, with markets playing the “will they, won’t they?” game on an almost daily basis.
This has resulted in an increase in the daily range on a lot of markets. With wider trading bands this would suggest that markets are more volatile. This volatility has significantly impacted across a range of markets. See the table below which shows the average pip ranges (forex pairs) and tick ranges (for DAX, gold and bund yield) in the past few years.
What we can see is that in 2015 the volatility in these trading ranges has increased significantly for the DAX, EUR/USD and GBP/USD. The other takeaway is that this volatility has been ramped up in the past couple of weeks (ie. in June). The volatility has really taken off for the DAX, EUR/USD and the German Bund yield. There is a big driver behind this and that is the German Bund yield which has been trading tick ranges almost double its 2015 average.
Volatility is elevated and that creates opportunities in markets if you can call them correctly. There continues to be a positive correlation between the German Bund yield and how the Euro trades. Whilst there is also a negative correlation for both the Bund and the euro versus the DAX. Call the Bund yield right, and you have a good chance of calling on the Euro and also the DAX. Also with volatility at elevated level;s it could be a lucrative play.