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Yen & Euro Expected Volatility at Opposite Ends of the Spectrum

Yen & Euro Expected Volatility at Opposite Ends of the Spectrum

What’s inside:

  • Table outlining one-week & one-month differentials, range expectations for major USD-pairs
  • USDJPY short vs medium differential largest, but still small
  • EURUSD one-week implied volatility well under one-month, but technical pattern could mean underpriced; will likely change regardless by week’s end

Find out in our Q4 Forecast s what is expected to drive the FX market through year-end.

In the following table, you’ll find implied volatility (IV) levels for major USD-pairs looking out over the next one-week and one-month time-frames. We’ve noted the differential between the two, which can help shape expectations and/or identify currency pairs where the options market may be under or over-pricing potential price movement in the short-term. Also outlined, are derived one-week range-low/high prices from the current spot price within one-standard deviation. (Statistically speaking, there is a 68% probability that price will remain within the lower and upper-bounds.)

1-week/1-month differential shows highest relative short-term expectation in USDJPY, while the lowest is EURUSD

Generally speaking, FX volatility has cooled a bit recently and the options market is reflecting this with short-term implied volatility easing. Of course, this dynamic can change very quickly, so traders should always be on their toes. But even with that said, when shaping our expectations for trades we need to be mindful so as to not ‘force the issue’ and take what the market gives us until market conditions change.

Looking across the board of major USD-pairs, USDJPY has the highest short-term expectations compared to the next month. One-week implied volatility is at 8.95%, compared to the one-month level of 8.5%. It’s not a very big differential, though. The one-week projected range is 11041 to 11319. The high threshold is of interest as it aligns near the monthly high and trend-line from January.


Expectations for short-term volatility on a relative and actual basis are lowest in EURUSD, where the differential between one-week and one-month implied volatility is at -1.28%, with each period sporting 5.99% and 7.27%, respectively. This will likely change towards the end of the week as the market begins pricing in a higher likelihood of volatility at the October 26 ECB meeting. The one-week projected range is 11705 to 11901. What is of particular interest and could prove the sub-6 IV level to be underpriced, is if we see a break of the ‘neckline’ of a ‘head-and-shoulders’ pattern we discussed in this week’s EURUSD weekly technical forecast.

For other currency volatility-related articles please visit the Binaries page.


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---Written by Paul Robinson, Market Analyst

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