EURUSD August Ranges Still Leave Room For Expansion Statistically

With the month of July now behind us, we have taken a retroactive look at EURUSD in an effort to place the Summer trading ranges in a historical perspective. In particular, we examined the past four years post the 2008 financial crisis. Our findings have shown that July as a trading month has actually been more volatile - that is with a larger percentage price range than the month of August and until now, this still remains the case.

Here is a summary of what we found for the trading month of August: The mean percentage range in EURUSD for August post-2008 would leave this pair in a 1.2979-1.3540 zone. If one were to look at the maximum percentage ranges for August, it would, in turn, suggest a 1.2789-1.3654 trading zone. So what can be expected in terms of month-end ranges for the current trading month we are in and what trading opportunities this may give rise to?

What's ahead?
Until now, we have seen a total range of 1.3187-1.3400 for August, which in price terms equals 213 pips. This gives potential for - if one looks at the mean percentage ranges - a 208 pip fresh new downside move in EURUSD, below the current monthly lows. On the upside, similarly EURUSD statistically has a potential for a 140 pips upside move above the current monthly highs.

Looking at the two-week at-the-money (ATM) straddle prices in EURUSD, with no visible skew, a total current price of 150 pips can be attained, with 75 pips for both a call and a put option. In other words, an ATM call with a two-week expiry gives potential for 65 pips profit (net of premium expenses). An ATM put with same expiry in turn gives a potential profit of 133 pips. So the risk reward in EURUSD is certainly favouring the covering of downside risks in EURUSD. But that said, the technical outlook still has a bullish bias.

FOMC focus
Wednesday's Federal Open Market Committee meeting could potentially lead to a break of key levels for EURUSD as the market will likely look for additional clues that the Fed’s first tapering of monetary accommodation will take place in September. While the US numbers, though mixed, have been generally pointing to the economy still being on the recovery path, the recent market action in both emerging-market currencies and riskier asset classes has also shown markets increasingly pricing the September tapering.

From the technical perspective, the EURUSD on the upside did not manage to close above the trend-line resistance from the 2011 May highs. If this is managed however, the way is opened for a test of 1.3416 - the June highs - and thereafter 1.3490, which is the 38 percent retracement in the 1.4940-1.2042 wave. On the downside, look for 1.3190-1.3205 to be the key support area, where a close below would give scope for a test of sub-1.3000 levels in the near term.

Chart 1: EURUSD monthly trading ranges truncated

Chart 2: Technical upside bias in EURUSD still intact