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Currency Volatility EUR Talking Points

  • EUR/USD Volatility Rises as ECB Risk is Captured
  • Risk Reversals Flip to Positive

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

EUR/USD Volatility Risk Captures ECB, Downtrend from 2019 Peak in Focus

Source: Thomson Reuters, DailyFX

G10 FX Implied Move

EUR/USD Volatility Risk Captures ECB, Downtrend from 2019 Peak in Focus

Source: Thomson Reuters, DailyFX

EURUSD | Overnight Options Capture ECB Meeting

1-day implied volatility is highest in EUR/USD across the G10 complex as it now captures the ECB monetary policy meeting. Alongside this, vols are also notably higher than prior ECB meetings throughout 2019 with ATM break-even straddles implying a move of 55pips. The ECB meeting is likely to reiterate the downside risks to the Eurozone economy given the weaker than expected data, while the latest staff projections could show yet another downgrade to inflation and growth forecasts thus potentially tempering recent gains in the Euro.

EUR/USD Risk Reversals Flip to Positive

However, with that said, EUR/USD risk reversals have recently flipped to positive, meaning option players are now seeking protection for further gains as calls trade at a premium to puts. This has largely stemmed from fuelling bets that the Federal Reserve will carry out “insurance” rate cuts with money markets aggressively pricing in 2 rate cuts by the year-end. Consequently, dovish commentary from the Federal Reserve could underpin the currency, as it has done over the last week.

EUR/USD Technical Outlook

Having made a break above the double top (1.1265) eyes are now on for a move towards the downtrend from the 2019, which also coincides with the psychological 1.13 handle, providing the currency manages to close above the double top. On the downside, support is situated at 1.1220.

EURUSD Price Chart: Weekly Time Frame (Oct 2018June2019)

EUR/USD Volatility Risk Captures ECB, Downtrend from 2019 Peak in Focus

--- Written by Justin McQueen, Market Analyst

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

Follow Justin on Twitter @JMcQueenFX