The absence of strong directional trends has dampened investor appetite to trade foreign exchange, pushing volumes lower and curbing volatility - which allows traders to exploit intra-day movements to place profitable bets.
With the euro trapped between $1.30 and $1.35 since January, the Swiss National Bank capping the Swiss franc against the euro and the British pound, though edging higher, still within the broad range of the last year, traders are facing a stark choice.
"Adapt or die," as Brent Donnelly, global head of G10 spot trading at Nomura, said in a recent client note, is the challenge facing banks as some start to fret about missing 2012 FX revenue targets.
For some, adapting means employing computer algorithms to outsmart the rest of the market. For others it involves a back-to-basics approach to trading in a market where tighter ranges could persist while global growth remains sluggish.
"It's very tough at the moment because most traders and speculators make their money from trends. If the market isn't going anywhere, people sit on the sidelines," said Graham Davidson, director of FX trading at National Australia Bank.
"It will have a detrimental effect on FX trading revenues in most major banks, no doubt about that."
Investment banks tend to lump currency trading in with bond and commodities trading, without breaking out income for the various businesses. Such units as a whole contributed more than half of revenues at the top 10 investment banks in 2011, according to analytics group Coalition.
While credit trading suffered last year as investors spooked by euro zone worries shunned bonds, currency trading was cited by several banks as a bright spot and commodities also did well.
Lacklustre economic growth and loose monetary policy from many central banks means most major currencies are locked in what analysts have dubbed an "ugly contest", with plenty of reasons to sell and few good reasons to buy any of them.
The possibility of more monetary easing is weighing on the dollar and yen, while the euro is dogged by concerns about a flare-up in the euro zone debt crisis. Britain is back in recession.
Ample central bank liquidity has curbed excessive swings across asset classes and in the currency options market demand has slumped for protection against sharp moves in the euro.
One-month euro/dollar implied volatility, an indicator of how volatile a currency is expected to be based on options prices, is at its lowest since Lehman Brothers collapsed in September 2008.
"There has been a general drift lower in volumes across the FX market ever since the beginning of the year and vol (volatility) has pretty much mirrored that move," said Antony Foster, EMEA head of G10 spot trading at Nomura.
"I know for sure a lot of the bigger players who have January to December financial years are looking at the numbers after four months. It can't be nice."
Data from settlement system CLS showed the average daily volume of transactions rose between February and March to 770,109, but was down on the average 869,135 transactions settled in a year earlier. The average daily value was $5.07 trillion in March, below September's record $5.21 trillion.
As money-making opportunities stemming from trend and volatility dry up, traders are adjusting strategies to cope.
Many banks are developing computer algorithms to execute trades automatically and as efficiently as possible, without alerting other market players to the flow.
By identifying the periods of deepest liquidity and "hiding" large trades from the wider market, they aim to avoid price slippage - the difference between the price at which a trader wants to execute an order and the price at which they are able to do so.
"It's a different way to execute without leaving a footprint," said Bob de Groot, global head of FX spot trading at BNP Paribas.
National Australia Bank's Davidson said traders had to be nimble. That meant trading within intra-day ranges with bigger order sizes to maximise potential profits, and much tighter automatic buy-or-sell orders to limit any losses.
Citibank's Michael Plavnik, head of short-term interest rates trading, said patience and discipline were crucial. He recommended being aware of technical levels within a range, to pinpoint when a currency may stall or reverse direction.
For the longer term, however, most traders said foreign exchange still had huge potential as an asset class.
"The landscape has changed, we're in a lower vol environment and there are humbler opportunities in terms of how far markets are going to move, but that doesn't mean the opportunities have gone," said BNP Paribas's De Groot. "It means they've changed." (Additional reporting by Sarah White; Editing by Nigel Stephenson and David Holmes)
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