6 Jun 2013
Flash: High voltage - Nomura
FXstreet.com (Barcelona) - Nomura strategist Saeed Amen asks, “How has FX vol reacted to large-scale USD rallies?”
In a recent article he discussed the recent USD rally and he has also positioned for a continuation in the USD rally. In particular he focused on how big-picture USD rallies have evolved in the past and extended that work, focusing in particular on FX vol. He finds that in general, during the beginning of large USD rallies, FX vol initially spiked, before settling lower, before subsequently rising as the USD trend becomes more entrenched.
Further, he adds that in the current rally FX vol seems more elevated compared with similar early previous USD rallies. Hence, his analysis suggests that in the medium term, vol is expensive here. In particular, USD/JPY, USD/CHF and Antipodean vols seem elevated. This compares with EUR/USD vol, which seems relatively cheap. He also notes that while Nikkei vol has spiked, it has not resulted in any large moves higher in VIX. he writes, “This supports the expectation for some downside in USD/JPY vol. We note that the recent sell-offs in markets, such as Nikkei, EM and USTs (see Global FX Insights: The EM sell-off: Taking stock 3 June 2013) have pushed vol higher, so there is the caveat that the sell-off needs to subside for selling vol to be effective.”
In a recent article he discussed the recent USD rally and he has also positioned for a continuation in the USD rally. In particular he focused on how big-picture USD rallies have evolved in the past and extended that work, focusing in particular on FX vol. He finds that in general, during the beginning of large USD rallies, FX vol initially spiked, before settling lower, before subsequently rising as the USD trend becomes more entrenched.
Further, he adds that in the current rally FX vol seems more elevated compared with similar early previous USD rallies. Hence, his analysis suggests that in the medium term, vol is expensive here. In particular, USD/JPY, USD/CHF and Antipodean vols seem elevated. This compares with EUR/USD vol, which seems relatively cheap. He also notes that while Nikkei vol has spiked, it has not resulted in any large moves higher in VIX. he writes, “This supports the expectation for some downside in USD/JPY vol. We note that the recent sell-offs in markets, such as Nikkei, EM and USTs (see Global FX Insights: The EM sell-off: Taking stock 3 June 2013) have pushed vol higher, so there is the caveat that the sell-off needs to subside for selling vol to be effective.”