FxWirePro: A Run Through on Global FX Vols in Q2’2019

FX volatilities recently, across the board dropped to exceptionally low levels. In such an environment jumps in exchange rates become more likely.

Before we proceed further let’s just quickly glance through above nutshell showing implied volatilities of G10 FX bloc. Majority of the currency crosses are dipping towards the lower side.

As FX options markets enter into Q2’19 with some signs of life in EM where idiosyncratic macro stories have begun to re-emerge (TRY, BRL) and select satellite European currencies (NOK, SEK, HUF) that are proving more responsive to persistent European growth malaise than the Euro itself (refer above chart). 

The two pockets that continue to remain stubbornly comatose are G3 and Asia FX. The surfeit of liquidity in the underlying spot in the former has always been the Achilles heel for vol buyers, which perhaps explains why Euro vol ownership has proven to be a frustrating endeavor over the past two decades except for brief periods around the GFC and the European debt crisis. 

The other component of the G3 bloc – JPY – has been an enigma for many investors over the past year, and is likely to remain that way in light of the structural shift in Japan’s BoP (outflows) that is muffling the currency's normal anti- cyclicality. 

The under-delivery of Asian vols should also not be overly surprising given that yuan stability has been the mantra during the ongoing US/China trade negotiations, with vol dampening spill-overs onto regional currencies strongly anchored by the CNY. Some of these trends will persist into 2Q, others will fade. 

If vols start rising from here, there should be winners: the usual safe-haven currencies JPY and CHF. Both already gained this morning, but if I am right and FX vols will permanently abandon the extremely low levels of this week, their current gains should be justified. Courtesy: JPM 

Currency Strength Index: FxWirePro's hourly EUR spot index is flashing at 25 levels (which is mildly bullish), hourly USD spot index was at 35 (mildly bullish) while articulating at (12:24 GMT). 

For more details on the index, please refer below weblink:

  • Market Data

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