One aspect of the currency market that has always been fascinating to me is how brutal – and how swift – the collective judgment of the participants can be. 

British Prime Minister Theresa May got a taste of this when she gave a speech in the early hours of trading this week lauding the U.K.’s strength as the fifth-largest economy. But by the end of the speech, in which she said Conservatives will use the power of government to "restore fairness" in Britain and spread prosperity more widely, the British pound sterling had fallen so much in value that the U.K. GDP on a global stage lost the fifth place spot to France – which of course is valued in euros.

So what is the trading in the euro telling us? Bloomberg carried an article earlier this week that noted that the euro moved in its narrowest range ever for any single quarter since its inception. And looking forward, traders seem genuinely confused as to where to take the currency next. A Bloomberg survey of analysts looking out into 2018 predicts the euro will stay in a range almost as tight as this last quarter.

That same sentiment extends to the International Money Market of the Chicago Mercantile Exchange, where open position on euros – where folks put up real money for financial contracts – have been remarkably small compared to British pound sterling and most other major currencies.

It prompted our own set of informal surveys and discussion of the folks we interact with in the market, and a couple of themes have emerged.

First, since the euro/usd currency pair is the most traded currency pair in the world, it serves as a de facto barometer of where global economic leadership is coming from among the U.S. or Europe. Right now, there are too many unknowns, particularly with the U.S. election.  But the uncertainty extends to serious questions about the path of the U.S. Fed and the ECB.

Secondly, why take big positions on euros and US dollars when the alternatives are much easier to analyze, like when British PM May makes a comment that could make long-term sense, but short-term – even for the length of her speech – rattles the City of London’s currency world.

My View: It takes a lot of uncertainty to make FX market participants act like a deer in the headlights, but this fall seems to have all those events coming together.  

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