Ring-Fencing EUR/USD: A Dubious Solution to Low Volatility
A recent conversation with an e-trader sparked Colin Lambert to ponder whether EUR/USD should be isolated from the rest of the spot FX market. The trader described the pair as 'next-to-no-reward' and complained about the time spent trying to win business in a market that offers little reward.
Lambert argues that low volatility is not unique to EUR/USD, pointing out that there are opportunities emerging in other areas such as Emerging Markets (EM), the yen, Sterling, and Aussie. He also suggests that e-trading has dampened volatility due to machines dominating spot FX trading.
A review of EUR/USD's history shows a distinct decrease in range over the years, from 1.60 to 0.8290 in the early days of the euro to 1.47-48 to 0.95-96 over the last 15 years. Lambert attributes this change to zero interest rates worldwide rather than e-trading.
Lambert suggests that EUR/USD is plagued by excessive data, creating a self-fulfilling doom spiral in interest. He notes that e-trading loves data and that market makers or liquidity providers (LPs) are attracted to the pair due to its high trading volume.