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Forex Flash: Currencies drift towards a range-trading environment - HSBC

FXstreet.com (Barcelona) - Lack of prospective movements in FX, with the EUR/USD choppiness a good characterization of such slow pattern established, suggests "a tendency to drift towards a range-trading environment" says HSBC.

HSBC notes: "Consider the recent example of those who sold the EUR on the basis that the ECB appeared more likely to cut interest rates. For a while, the world felt simple. Sell the EUR because rates are going lower – we were back to the good old days. But the EUR did not continue to fall, recovering some ground even though there had not been any marked reappraisal of ECB rate cut expectations. This typifies the problem we are currently facing."

HSBC adds: "Forecasters, investors and traders are struggling to find a clear explanation for currency moves, and so position sizes become smaller, stops tighter, and profits are taken more quickly. As a result, currencies are drifting into ranges. Even those exchange rates which enjoyed strong trends during Q1 13 such as GBP-USD and USD-JPY have glided into sideways patterns."

For now, HSBC recommends that the best strategy "is not to claim some neat unifying explanation for all currencies but to recognise the lack of clarity and play the ranges until the world of FX becomes more straightforward again."

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