26 Mar 2015
EUR/USD volatility might decline in the coming days – Nomura
FXStreet (Barcelona) - FX Strategists at Nomura, are of the opinion that EUR/USD spot might range-trade, and that the volatility in the pair could decline in the coming few days.
Key Quotes
“The Fed signalled at its March meeting that a strong USD does indeed matter, and this is reflected in the sharp shift down in the Fed’s interest rate projections, i.e. “the dots”. Our analysis convinces us that further USD strength has the potential to delay the timing of a lift-off.”
“Since the FOMC, while USD has taken a back seat against most FX, it is interesting to see that most USD-cross vols are still trading at relatively high levels.”
“EURUSD front-end implied vols spiked after the FOMC, resulting in a strongly inverted vol curve. The increase in implied vols came against the direction of spot-vol correlation and occurred despite the loss of event premium from the vol curve.”
“In fact, EURUSD implied vols have become extremely rich relative to vols of other asset classes as well, such as S&P500, EUROSTOXX 50 and US rates.”
“Part of the reason for this has been strong gamma performance due to the erratic price action over the past few days – average 1-day realised vol over the past five days has been around 15.5%, but this is now coming off. Realised volatility over the last 24 hours has come down to 12%.”
“We believe that EURUSD vols should decline over the next few days as spot settles in the new range, and the calendar looks light in terms of important data releases.”
“In terms of EURUSD spot, we believe there is now an increased likelihood of range-bound trading.”
Key Quotes
“The Fed signalled at its March meeting that a strong USD does indeed matter, and this is reflected in the sharp shift down in the Fed’s interest rate projections, i.e. “the dots”. Our analysis convinces us that further USD strength has the potential to delay the timing of a lift-off.”
“Since the FOMC, while USD has taken a back seat against most FX, it is interesting to see that most USD-cross vols are still trading at relatively high levels.”
“EURUSD front-end implied vols spiked after the FOMC, resulting in a strongly inverted vol curve. The increase in implied vols came against the direction of spot-vol correlation and occurred despite the loss of event premium from the vol curve.”
“In fact, EURUSD implied vols have become extremely rich relative to vols of other asset classes as well, such as S&P500, EUROSTOXX 50 and US rates.”
“Part of the reason for this has been strong gamma performance due to the erratic price action over the past few days – average 1-day realised vol over the past five days has been around 15.5%, but this is now coming off. Realised volatility over the last 24 hours has come down to 12%.”
“We believe that EURUSD vols should decline over the next few days as spot settles in the new range, and the calendar looks light in terms of important data releases.”
“In terms of EURUSD spot, we believe there is now an increased likelihood of range-bound trading.”