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EUR/USD & USD/JPY Options-derived Volatility Expectations into FOMC

EUR/USD & USD/JPY Options-derived Volatility Expectations into FOMC

2017-12-13 09:30:00
Paul Robinson, Strategist
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What’s inside:

  • Short-term implied volatilities elevated heading into the FOMC announcement
  • EUR/USD one-day projected low aligns with major support
  • USD/JPY one-day projected high aligns with strong resistance

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

Today, we have the FOMC rate announcement at 19:00 GMT time, with the Fed expected to raise rates by 25-bps. The market’s attention will be placed on the new projections and the press conference with Fed Chairwoman, Janet Yellen. You can listen in live to the announcement with Chief Strategist, John Kicklighter, starting at 18:45.

Implied volatilities are elevated heading into today’s event as one would expect. In the table below, you’ll find implied volatility (IV) levels for major USD-pairs looking out over the next one-day and one-week time-frames. Using these levels, we’ve derived the range-low/high prices from the current spot price within one-standard deviation for specified periods. (Statistically speaking, there is a 68% probability that price will remain within the lower and upper-bounds.)

Implied volatilites with projected ranges for majors

EUR/USD has CB announcement risk on FOMC today, ECB tomorrow

Today and tomorrow will both be important days for the euro as both sides of the pair get hit with key announcements. While expectations are essentially baked into the cake we can never dismiss the possibility of a surprise. The one-day implied volatility for EUR/USD is a healthy 13.88%, projecting a 1-stdev range low/high of 11659/11830. Of particular interest, should we see price start rolling downhill and break the trend-line from April, is the projected low which is at the bottom of a big support zone, one which we discussed in the weekly technical outlook as potentially critical to the euro’s intermediate-term outlook. Hold and the bias stays neutral to bullish, fold and the November low or worse could quickly come into view.

EUR/USD: Daily

EUR/USD daily price chart with levels

USD/JPY one-day implied volatility is at 13.56%, projected daily range low/high of 11266/11428

The interest here lies in the projected top-side where even there is significant resistance running back through most of the year. In fact, the area above 11400 was important for turning USD/JPY lower on a few occasions. It will take a sizable amount of buying pressure to sustain those levels, something which may not be available at this time. Additionally, with the price a bit extended and the August 2015 trend-line hanging out right in the current vicinity the next path of least resistance may be lower.

Looking for live analysis or have questions? See the Webinar Calendar for the schedule of upcoming events.

USD/JPY: Daily

USD/JPY price chart with projected levels

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

---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.

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