Traders Brace For Higher Volatility This Week

After several days of muted trading conditions, volatility is likely to increase this week, with major central bank decision on tab.

The Federal Reserve is widely expected to raise interest rates by 25bp on Wednesday. Traders’ focus will be on the forward guidance. If the Fed signals a further hawkish bias, the U.S. dollar will receive a boost.

On Thursday, the European Central Bank is also expected to deliver a quarter-point hike but unlike the U.S. dollar, the euro could be at risk of a sharp drop. Given the deterioration of growth in the eurozone, ECB policy makers may sound less committed about further tightening.

Last but not least, traders will assess the June PCE data on Friday. A higher reading would argue in favor of additional Fed tightening, and thus, benefit the greenback.

Summer doldrums: We advise traders not invest too much or doing a trading break since volatility typically remains at very muted levels during the summer months of July and August. When volatility is low, there is more to lose than to gain.

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