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Currency Volatility EUR Talking Points

  • Option markets imply little in the way of volatility for EURUSD
  • Downside Premium Muted for EURUSD

Top 10 most volatile currency pairs and how to trade them

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

Currency Volatility: Euro Potentially Underpricing the Impact of the EU Election

Source: Thomson Reuters, DailyFX

G10 FX Risk Reversals

Currency Volatility: Euro Potentially Underpricing the Impact of the EU Election

Source: Thomson Reuters, DailyFX

EURUSD| Weekly Range (1.11101.1265)

This weekend will see focus on the results of the upcoming EU elections, in which results will be released by Sunday evening. Of particular interest will be the support for Salvini’s League party, which is expected to win around 30% of the votes. Despite this being down from 37% in recent weeks, it is still a strong performance from the 6.2% they received in the prior EU election. As such, a strong performance from Salvini does pose concerns over a snap-election in Italy.

However, according to option markets for the Euro, implied volatility is relatively subdued with ATM overnight vols (captures EU election) at a rather muted 4.273, which in turn sees break-even straddles at 35pips for EURUSD. 1-week option expiries for the pair alsoimplies that spot EURUSD volatility will be low with the break-even straddles at 51pips. Alongside this, options markets have not added further premium to Euro puts over calls with risk reversals on the overnight and 1-week residing at -0.225 and -0.325 respectively.

EU Election Preview – by Dimitri Zabelin

EURUSD Price Chart: Weekly Time Frame (Jul 16 – May 19)

Currency Volatility: Euro Potentially Underpricing the Impact of the EU Election

--- Written by Justin McQueen, Market Analyst

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

Follow Justin on Twitter @JMcQueenFX