What’s inside:

  • GBP/USD, EUR/USD, NZD/USD one-week implied volatilities show largest spread compared to one-month IV
  • An eventful week will have the FX market on its toes from start to finish
  • Projected one-week levels and how they stack up against the technical backdrop

See how retail traders are positioned in the FX market and what it could mean on the IG Client Sentiment data page.

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 periods. We’ve made not of the differentials, which can help shape expectations and/or identify currency pairs where the options market may be mispricing potential price movement in the short-term. Also outlined, are projected range-low/high prices from the current spot price within one-standard deviation of the current spot price looking out over the next week. (In theory, there is a 68% probability that price will remain within the lower and upper-bounds.)

Table of implied volatility and projections for major USD-pairs

GBP/USD 1-wk & 1-mo implied volatility highest among majors

Cable’s one-week implied volatility is at 10.48%, +2.25% higher than its one-month level. Near-term risks with ‘Brexit’ talks are likely to keep expectations high for the foreseeable future. Adding to the mix is the FOMC and BoE meetings on Wednesday and Thursday, respectively.

The one-week projected range is 13182-13570, of which both the upper and lower thresholds align with important technical levels. On the top-side, the high is near an important turning point back in September which was highlighted by a major reversal off of the Monday gap following the ‘Brexit’ vote and 2014 trend-line. The projected level is also just beyond the December swing-high. Cable is trending higher, but will require a good amount of buying to push it on through big resistance. On the downside, the projected low is in alignment with a zone created between a trend-line off the March and April lows. Those two lines are viewed as important to keep the trend for the year pointed higher.

GBP/USD: Daily

GBP/USD daily chart

EUR/USD 1-wk implied volatility isn’t near the top, but 1-wk/1-mo differential is 3rd highest

One-week implied volatility is at 7.42%, which is actually 5th on the list of major USD-pairs, but the 1-wk/1-mo differential ranks third and is at a healthy 1.34%. This means relatively speaking, higher levels of volatility are expected in the near-term versus looking out over the next few weeks. The FOMC and ECB meetings on Wednesday and Thursday, respectively, should bring elevated volatility. Although, with the Fed highly expected to raise rates again and the ECB to sit tight after recent adjustments to monetary policy, we may not see substantial price swings. Elevated options pricing may prove to be overdone.

On the downside, there is particular interest in the projected low given its alignment with major support surrounding 11700. If the euro is to maintain a neutral to bullish posturing it’s an important level to hold. At this time, it is viewed unlikely to break. On the top-side, the projected high is near the most recent swing-high from late-November. A rally could threaten to push the euro beyond resistance. It is viewed as the most likely of the two options-derived levels to be exceeded.

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EUR/USD: Daily

EUR/USD daily chart

NZD/USD rallies on announcement of new RBNZ governor, 1-wk/1-mo differential a solid 1.49%

Overnight, kiwi rallied sharply after Adrian Orr was named the next RBNZ governor. He will take over the post on March 27. NZD is no stranger to topping or being very near the top of the leaderboard, as implied volatility is consistently high. The 1-wk/1-mo differential suggests heightened short-term volatility expectations. The biggest interest here, is that the one-week projected low sits right about where today’s rally started from and is also significant support going back to May. It will take strong selling at this juncture to crack the area above 6800. On the top-side, if kiwi can continue to extend today’s rally we will first look to the November swing-level at 6980, then the under-side of the August 2015 trend-line which is just above the projected one-week high of 7015.

NZD/USD: Daily

NZD/USD daily chart

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

---Written by Paul Robinson, Market Analyst

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