Dollar Ranges So Far in 2016

August 16, 2016

After the close of yesterday, five-eighths of 2016 had been completed. Up to that point, the dollar had ranged considerably more widely against the yen, sterling loonie, Aussie dollar and kiwi than against the euro and Swiss franc. The high-low spreads of the EUR/USD and USD/CHF pairs were only 8.4% and 8.6%, while the trading corridors of the other five dollar relationships were between 14.8% and 22.9% in width.

The dollar’s disparate volatility against the yen (22.9%) and euro (8.4%) has been a mirror image of what happened a year earlier. During the first 5/8ths of 2015, the dollar’s high-low band was just 8.6% wide against the yen but 15.8% in width relative to the euro. In the comparable period of 2014, dollar/yen and euro/dollar had each been confined to very narrow trading bands that were just 4.7% and 5.0% wide. In 2013, the extent of movement in these two relationships was similar to what has been experienced so far in 2016: a bandwidth of just 7.6% in the euro but a high-low range of 19.9% in the case of dollar/yen.

In recent years when the range of movement in a key dollar relationship has been very great already by middle of August, that bandwidth hasn’t widened much further over the remainder of the year. Dollar/Swiss, for example, had a huge 38.6% trading corridor last year up to this point, which got extended only to a high-low spread of 39.1% for the entire calendar 2015 year.

In contrast, tight trading bands through this point in the summer led in some instances to similarly narrow bands for the whole year but in other cases were correlated with much wider high-low spreads by end-December. In 2013, a 9.1% range in the Canadian dollar through mid-August was associated with a high-low spread for the whole year of 11.8%. On the other hand in 2014, spreads of 5.0% in the euro and 4.7% in the yen as of mid-August eventually evolved into full-2014 ranges of movement that were 15.7% wide for EUR/USD and 21.0% wide for USD/JPY.

The historical information reviewed for this update suggests that significant new trading territory is more likely to be visited over the remainder of this year by the euro and Swiss franc than by the yen, sterling, loonie, kiwi, or Aussie currencies. But only one possible determinant of currency change has been examined in an attempt to ascertain a typical dollar range of movement in a single calendar year and how full-year ranges recently compared to ranges between the start of the year and mid-august. We didn’t look at current and projected economic fundamentals. The U.S. election figures to be very important, and there’s a potential for a strong market response. Trump and Clinton offer vastly different styles and priorities, and a spike in volatility is a risk any time a new presidential term begins. Even in 1985 when Reagan’s second term started, one of the profoundest long-term dollar directional reversals of the whole floating rate era occurred in late February of that year. Reagan was still president, but he changed his Secretaries of State.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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