Image Source:
Following the U.S. election, the currency markets have experienced a significant decrease in volatility, which has resulted in traders unwinding their wagers and tighter trading ranges developing. The benchmark one-month EUR/USD volatility has plummeted, suggesting that there is a reduced likelihood of substantial fluctuations in this pair that is already contained in a broadly defined 1.05/1.10 range. Traders who have established substantial bearish EUR/USD exposure are less likely to achieve the profits they anticipated, as the currency pair has remained within it’s range. The lack of significant EUR/USD movement in recent years and the passage of significant events without evoking a response point to the underlying inertia of this market, which might discourage further significant directional FX bets for the remainder of the year.As it became evident that Donald Trump would win the U.S. election, risk premiums were priced out; this caused broad-based FX option implied volatility to drop precipitously. The lower levels may now present appealing entry positions. After dropping once more on Thursday, the three-month expiry implied volatility in EUR/USD has seen some additional demand. The beginning of Trump’s administration and any FX volatility associated with his policies are included in the three-month FX option expiry.The current lower implied volatility and USD call risk reversal premiums may be valuable because German politics, sluggish EU growth, and yield differentials are predicted to maintain pressure on the EUR/USD exchange rate. Although dealers report demand for USD call spreads and long-dated expiration demand for 160.00 strikes, which would profit from a gradual USD/JPY rise, the USD/JPY 1-month expiry implied volatility is currently trading at new lows. It is noteworthy that from early post-election losses to 0.6500, the AUD/USD has recovered above 0.6600, and 1-month implied volatility has significantly decreased with a similar story seen in the MXN peso.More By This Author:Daily Market Outlook – Friday, Nov. 8Daily Market Outlook – Thursday, Nov. 7FTSE Fades Into The Close After Surging On U.S. Election Outcome
FX Options Insights
