EURUSD volatility remains depressed, but the euro appreciation that we expect is likely to be turbulent. In the process, the skew could flip in favour of EUR calls for the first time since 2009.
The next semester should see the euro break above its range of the last few years, and interest rate volatility fueled by central banks exiting accommodation will be channeled towards FX. Buy 6m EURUSD calls conditioned by higher volatility.
Towards the top of the EURUSD range: according to his circumstance, buy EURUSD 6m call strike 1.15, European KI on the realized volatility at 9% Indicative offer: 0.60% (vanilla: 1.61%, volatility swap: 7.6%, spot ref: 1.1240).
Reflation set to boost forward vol: Reflation in Europe and the US should involve a steepening of the volatility term structure, making long positions in EURUSD forward volatility very attractive.
Go long EURUSD forward volatility agreement 6m6m Indicative offer: 7.8 The game-changing scenario: 1.30 in 2018.
Finally, technicals, undervaluation, EA strong capital surplus and the ECB withdrawing from QE are strong forces that may propel the euro much higher than our 2018 forecasts. Buy EURUSD 2y OTM calls financed by selling the bottom of the range via expensive puts.
Hence, we advocate buying EURUSD 2y call strike 1.27, Sell 2y put strike 1.06 Indicative offer: 0.33% (Spot ref: 1.1240).