Currency Market and Risk Appetite will Rediscover Volatility and Direction Soon

Risk appetite has diminished for months; yet the positive bias behind the capital markets has not faltered whilst traders sought out the fundamental fuel for the next trend. However, we may see a resolution on both the direction and intensity of sentiment soon as the technical and fundamental pressures build to a breaking point behind the scenes. Whether in the FX, stock, fixed income or any other speculative market; liquidity is acting as a dampener for price action. The height of the summer holiday season has drained the markets and the extended US holiday this coming week will certainly exacerbate the situation. Under such unusual circumstances, volatility can be artificially inflated; but news and meaningful trends are very difficult to establish.What’s more, with both the dollar-based Majors and the Japanese yen crosses in the same position; a break will likely be echoed across the market and further fuel an shift in sentiment itself. EURUSD would be an appropriate gauge for any new trends that develop. The most actively traded currency pair is not highly sensitive to risk appetite; but that works in our favor as it will follow a trend rather than mere volatility. For motivation, three months of congestion has turned into a terminal congestion pattern and the average true range (with a 10-day average) has fallen to its lowest level since February of 2008. A break is inevitable; but the next trend will likely rely on fundamentals.