Benchmark EUR/USD option vol is close to its record low.
The lower volatility goes, the greater the chance that EUR/USD will extend its downtrend.
Quiet markets amplify the importance of interest rates .
The gap between U.S. and euro zone rates has narrowedm but it remains large (one-year swap 280pips).
That's a big interest rate gap for a very liquid currency pair.
Traders are short EUR/USD but not very short IMM/FX.
Given vol and rates, they're not short enough.
Traders betting on a drop will get paid to be short even if the pair remains stationary.
EUR/USD is close to the middle of the range that is widely forecast for the pair in the next few months.
That reflects uncertainty, and a reluctance to trade stemming from that uncertainty will limit betting, which will strength the trend.
Make no mistake, non-speculative traders will sell.
Shorts are a no-brainer for those considering what rates may do for the pair.
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