I've encountered many traders who make money in high volatility markets and then stop making money in low volatility environments.

Why does this happen?

Perhaps patterns change in the markets: how setups act during one volatility regime could be different from how they act in a different market environment.

Perhaps the traders are trading volatility expansion and not simply price movement. When the expansion doesn't occur, they lose opportunity.

The EUR has fallen 10% vs. the dollar in 4-month’s and is now contained in this narrow monthly range. Is this the fair value of the EUR? It’s lost 5% this year over European sovereign debt problems and the possibility that Trichet will fall behind Bernanke in hiking rates. The contagion scenario, referring to Spain and Portugal, has traders leaning left of center in their EUR positions. However, the record ‘short’ bets are in danger of feeling a ‘whiplash effect’. A natural healthy cleansing of the ‘weaker shorts’ is on the horizon.

Bearish Dollar Will Try and Recover Losses Today

Following yesterday's bearish downturn for the U.S. Dollar, the greenback will try and recover some of its losses with the help of several critical economic indicators today. Both the U.S. Trade Balance Report and this week's unemployment claims are likely to have an impact on Dollar positions.

The market continues to grind higher and today it challenged the high of the year. Trading volume is low and momentum is the driving force. Earnings season is almost over and the economic news is light. There's nothing to stand in the way of this rally for the time being. Solid earnings, strong balance sheets and low interest rates are the focal point. The market will continue to push higher until there is concrete evidence that a credit crisis is imminent.

The market has been grasping at straws with little data to use as fodder, especially in the North American trading sessions. Risk-on, risk-off has been moving on hearsay. China may decouple the Yuan from the dollar, the Greek’s have Obama’s support and equity markets rallying on ‘air’ with little volume. Opposing arguments against a stronger EUR are mounting. Rating agencies are questioning the possibility of a European sovereign default.