Calm is prevailing more or less in the currency markets, but don't expect it to last, these analysts say.
"Brace yourself for something a little wilder," says Alan Ruskin, head of G10 FX strategy at Deutsche Bank.
Ruskin expects volatility to remain fairly low for the first half of the year, and maybe even diminish a bit. But after that, expectations of interest rate hikes will be building, and the chances for volatility will increase.
Investors with carry trades on now can probably sit tight for a bit, Ruskin said, but before long, "you're likely to see a reignition of volatility and a less carry-friendly environment."
Amelia Bourdeau, senior G10 FX strategist for the Americas at UBS, thinks volatility is already starting to tick up, and she expects event risk to keep it rising.
It will be hard to predict what will come out of the eurozone leaders' summit, the US debt ceiling debate, or the effect of the end of quantitative easing, just for starters, she said. And that level of uncertainty should help safe-haven currencies like the dollar. For investors trying to catch that wave, Bourdeau suggests going long dollar/yen at current levels, putting a stop at 82, and looking for a move to 86.
CURRENCY FUTURES
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