HSBC - " Low volatility provides an appealing opportunity to hedge against currency risk. FX market volatility has declined sharply since the beginning of the year despite developments that might have been expected to push volatility up. The fall in volatility has been seen across the whole market and has come as the factors that pushed volatility up in 2013 have faded. Volatility is now well below long term average levels and is reaching the lows last seen in 2005/06. We believe there is a good chance that this environment of low volatility will last for several months, but it should not be expected to persist indefinitely. Low volatility contains the seeds of its destruction as it will no doubt encourage the building of carry positions in both G10 and EM. Currencies that are likely to benefit in this environment are the 'fragile five' EM currencies, and the NZD in the G10. Ultimately, positioning in these carry plays will grow and grow, only to be eventually unwound, a process that is often disorderly. Low volatility may seem boring but offers the option to hedge against more exciting times ahead"

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Tags: HSBC, low forex volatility, volatility hedge

Comment by Daologic on April 24, 2014 at 9:30am

Yes, but low volatility is bad for the average forex trader.

Comment by Francesc Riverola on April 24, 2014 at 11:01am

Yes Dao, the absence of volatility it is bad for retail traders as its activity decreases with the absence of volume and volatility in the market.... and it is bad for FXStreet as the less interest for trading, the less interest for visiting the site :(

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