Major currency volatilities rose on the session – with both EURUSD and USDCHF volatilities leading the board higher. Both currencies’ implieds seem to be supported by record levels breached by the Swiss franc, against both Euro and US dollar – with the franc closing in on parity with the former. As a result, EURUSD volatilities are well above 13% – trading at 13.2%.
For the most part, today’s action seems to be in light of record lows hit in both the USDJPY and USDCHF currency pairs. Both exchange rates have been pushed lower on concerns that the US debt ceiling deadline looms in less that 48 hours. This sentiment has increased put option volumes in both JPY and CHF, with a bulk coming in from hedgers looking to protect their own long positions.
On the heels of a disappointing gross domestic product report, the USDCAD exchange rate has jumped higher by about 80 pips. The move has given traders bullish the Canadian dollar an opportunity to add to positions – even as higher implied vols make CAD calls more expensive. Canadian dollar vols have increased to 9.5%. In particular, today’s move is making short term in-the-money.
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With US debt ceiling woes still lingering, the US dollar has taken a pounding in the last couple of sessions. The sentiment has prompted both hedgers and speculators to side with major currency call options. In particular, this morning we have seen interest in EUR and JPY call options – with even more interest in CHF calls. The Swiss franc traded at another all time record high.
The Swiss franc hit a record high on the day – prompting serious demand for the currency’s calls, even as implieds jumped the most on the day. Swiss franc 3-month implieds rose to trade at 12%, the highest advance among the major currencies – and running first to a jump in JPY implieds at 10.25%. Breaking through support, the USDCHF currency pair fell to a low of 0.8020..
Implied volatilities have dropped off from recent highs – on the heels of an announced bailout package for Greece by European Union leaders. Although the package details doesn’t really show any improvement in backstopping a potential crisis contagion, it does quell massive speculation – for the moment. But, with the summer doldrums fully upon us, it’s no wonder that.
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Not a lot has changed in regards to the volatility picture overnight. Euro implied volatilities continue to remain relatively high – trading at 13.4% – making options still pricey at the moment. But, the EURUSD risk reversals continue to favor upside for the exchange rate in the near term. Three month 25 delta risk reversals continue to trade at -3.3 – an extreme level.
As can be expected, EURUSD implied volatilities have declined a bit as the market awaits word from Europe’s finance ministers. The break has left markets considerably choppy as we approach key technical levels – 1.4200 in the EURUSD and 0.9500 in USDCAD. This wait has helped EURUSD implieds to come down a bit – but not too much. Right now, EUR implieds are trading at.
