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Currency VolatilityGBPUSD and EURUSD Talking Points

  • GBPUSD Volatility Surges, Brexit Extension to be Announced
  • EURUSD Risk Reversals Flip to Positive, Suggesting Near Term Bottom

Top 10 most volatile currency pairs and how to trade them

1D Implied Volatility

Currency Volatility: GBPUSD Volatility Surges Amid Emergency EU Summit

Source: Thomson Reuters, DailyFX

Take a look at our Brexit Timeline to see how negotiations have impacted the markets.

GBPUSD: With eyes on the emergency EU summit, in which it is likely that a Brexit extension will be announced, 1D implied volatility have jumped 7.4 vols to 17.45, as such, the daily implied move is at 96pips. Alongside this, while risk reversals continue to show a premium for downside protection in GBPUSD this has eased in recent sessions as markets continue to price out the likelihood of a no-deal. However, with that said, given that speculative positioning in GBP is somewhat neutral, there may be little to suggest that a short squeeze will fuel a sizeable rally in GBPUSD on a Brexit extension announcement. Elsewhere, retail traders via IG retail positioning remain heavily net long on GBPUSD at 73.9%, which in turn has provided a stronger bearish contrarian bias.

Option Expiries: 1.2990-1.3005 (1.6bln), 1.3130 (400mln)

EURUSD: Yesterday’s report notes that ahead of ECB meeting, EURUSD volatility is at the highest since the last ECB meeting, with an implied daily move of 49pips. Although, which is also important to note is that while 1D volatility has jumped, on a weekly basis they remain subdued, suggesting that the recent range is intact. Alongside this, 1D and 1W risk reversals have flipped to positive, meaning that there is a higher premium for EURUSD call options over puts, potentially suggesting that EURUSD may have bottomed in the near term at 1.1175-85, unless the ECB provides fresh dovish signals. However, this is unlikely to be the case with the ECB likely to await further clarity on whether there could be a rebound in data throughout Q2.

Option Expiries: 1.1200 (700mln), 1.1225 (509mln), 1.1245-50 (1.3bln), 1.1260-75 (2bln)

Currency Volatility: GBPUSD Volatility Surges Amid Emergency EU Summit

Source: Thomson Reuters, DailyFX

WEEKLY CURRENCY VOLATILITY REPORT

For a more in-depth analysis on FX, check out the Q2 FX Forecast

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX