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Euro Expected to be Most Volatile So Far This Year on ECB Risk

Euro Expected to be Most Volatile So Far This Year on ECB Risk

Justin McQueen, Analyst

Currency Volatility EUR Talking Points

  • EURUSD overnight implied volatility jumps to 2019 Highs
  • Risk reversals flip to negative on the short-term tenor
  • ECB to set the stage for further stimulus

Top 10 most volatile currency pairs and how to trade them

For a more in-depth analysis on FX, check out the Q3 FX Forecast

Euro Expected to be Most Volatile So Far This Year on ECB Risk

Euro Expected to be the Most Volatile Currency

EURUSD| Overnight EURUSD implied volatility has surged to 2019 highs as the expiry covers the ECB risk premium. Implied vols almost doubled, having surged 13.336, in turn the EURUSD ATM break-evens = 62pips(meaning that for option traders to realise gains, the spot price must see a move of at least 62pips). Alongside this, risk reversals have also flipped to negative at -0.15 suggesting that option traders are seeking protection for EURUSD losses on anticipation of a dovish ECB. Alongside this, eyes will be firmly placed on the 1.1100 as a break below could exacerbate further downside pressure in the pair.

Euro Expected to be Most Volatile So Far This Year on ECB Risk

The ECB monetary policy decision is scheduled for 12:45BST (07:45EST), where expectations are for the ECB to stand pat on interest rates, however, money markets are roughly 50/50 on whether the ECB lowers the deposit rate by 10bps to -0.5%. That said, if the ECB were to wait until the September meeting, they could prep markets by altering their forward guidance and state that interest rates can be at present or lower levels, while also signal that they are willing to restart QE if required. Alongside this, the focus will also be on President Draghi’s press conference from 13:30BST (08:30EST)

EURUSD Price Chart: Daily Time Frame (Aug 2018Jul 2019)

Euro Expected to be Most Volatile So Far This Year on ECB Risk

--- Written by Justin McQueen, Market Analyst

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

Follow Justin on Twitter @JMcQueenFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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