FxWirePro: Global vol structures attract USD calendar spreads

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FxWirePro: Global vol structures attract USD calendar spreads

Thursday, January 25, 2018 1:06 PM UTC

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The global picture on the volatility front hasn’t really changed in recent months. Implied and realized volatility is still hovering in their low or very low percentiles. The currency market has been acting as the adjustment factor between countries positioned at different parts of the economic cycle clock built.

The eye-catching jump in front-end USD vols of late -VXY Global is up 0.7 % pts from the middle of last week --has led to the inversion of vol curves in a handful of major currencies (refer above chart). Coupled with palpable anxiety around the longevity of the unusually swift dollar downtrend, this vol structure is motivating considerations of short front vs. long back USD put calendar spreads as theta harvesting overlays on dollar shorts.

We are not convinced about the advisability of such structures however when realized vols are typically rising alongside a weakening dollar; the persistent forecasting error in recent weeks has been to underestimate the velocity of the dollar downtrend, and there is little evidence that consensus expectations have necessarily adjusted for these misses judging from the general surprise at yet another late-week drop in USDCNH.

The only currencies where one might consider sell/buy USD put calendars with some conviction are those where central banks have voiced concerns about FX strength and/or potentially defended a short-term floor (e.g. 1060 in USDKRW), but even there, powerful macro (trade-related appreciation pressures) and flow (equity inflows) forces could derail option constructs reliant on precise timing of spot moves. Courtesy: JPM

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MOODY'S SAYS DISCREPANCY BETWEEN TURKEY'S CENTRAL BANK'S INFLATION FORECASTS, "UNWILLINGNESS" FOR POLICY TO ACHIEVE THOSE TARGETS UNDERMINES ITS CREDIBILITY

MOODY'S SAYS TO MANAGE "SOFT LANDING" OF TURKISH ECONOMY IS A CHALLENGE IN LIGHT OF WEAKENED INSTITUTIONS AND INCREASING TENSIONS WITH U.S.

MOODY'S SAYS PROBABILITY THAT TURKISH AUTHORITIES WILL MANAGE TO ENGINEER A "SOFT LANDING" OF ECONOMY IS DECLINING

MOODY'S SAYS ALSO NOTES THAT TURKEY HAS SUCCESSFULLY MANAGED PREVIOUS SERIOUS ECONOMIC AND FINANCIAL SHOCKS

MOODY'S SAYS TURKEY'S EXTERNAL FUNDING NEEDS REMAIN SIGNIFICANT, AND THE RISK OF A BALANCE OF PAYMENTS CRISIS CONTINUES TO RISE

MOODY'S SAYS VIEW OF FURTHER DECLINE IN PREDICTABILITY, EFFECTIVENESS OF TURKEY'S ECONOMIC POLICY MAKING EXEMPLIFIED BY CONCERNS OVER CENTRAL BANK'S INDEPENDENCE

MOODY'S SAYS ALSO LOWERED TURKEY'S LOCAL CURRENCY BOND AND DEPOSIT CEILINGS TO BA1 FROM BAA2

MOODY'S ON TURKEY SAYS TIGHTER FINANCIAL CONDITIONS, WEAKER EXCHANGE RATE, LIKELY TO FUEL INFLATION FURTHER, UNDERMINE GROWTH

MOODY'S SAYS LOWERED TURKEY'S LONG-TERM COUNTRY CEILINGS, FOREIGN CURRENCY BOND CEILING TO BA2 FROM BAA3; FOREIGN CURRENCY DEPOSIT CEILING TO B1 FROM BA3

MOODY'S SAYS KEY DRIVER FOR TURKEY'S DOWNGRADE IS CONTINUING WEAKENING OF PUBLIC INSTITUTIONS, RELATED REDUCTION IN PREDICTABILITY OF POLICY MAKING

MOODY'S SAYS DOWNGRADED THE GOVERNMENT OF TURKEY'S LONG-TERM ISSUER RATINGS TO BA3 FROM BA2 AND CHANGED ITS RATING OUTLOOK TO NEGATIVE

MOODY'S DOWNGRADES TURKEY'S RATINGS TO BA3 AND ASSIGNS NEGATIVE OUTLOOK

S&P SAYS EXPECT TURKEY'S FISCAL POSITION TO WEAKEN BUT REMAIN SUPPORTIVE OF THE SOVEREIGN RATINGS

S&P ON TURKEY SAYS BELIEVE THAT GENERALLY HEIGHTENED POLITICAL UNCERTAINTY WILL ALSO LIKELY PUT A BRAKE ON PRIVATE INVESTMENT

S&P SAYS TURKEY'S BALANCE OF PAYMENTS VULNERABILITIES REMAIN A KEY RATING CONSTRAINT

S&P SAYS TURKEY'S CURRENT ACCOUNT DEFICIT HAS PEAKED AND WILL DECLINE IN COMING MONTHS

S&P SAYS ELEVATED INFLATION IN TURKEY BY PASS-THROUGH FROM EXCHANGE-RATE DEPRECIATION WILL ERODE REAL INCOMES, DEPRESSING PRIVATE CONSUMPTION

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Economics Monitor

August 17 14:30 UTC Released

USECRI Weekly Annualized

Actual

0.3 %

Forecast

0.6 %

August 17 14:30 UTC Released

USECRI Weekly Index

Actual

147.4 %

Forecast

147.8 %

January 31 00:00 UTC 288351288351m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Bln AR bln ARS

January 31 00:00 UTC 288351288351m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Bln AR bln ARS

January 22 19:00 UTC 300171300171m

ARTrade Balance

Actual

Forecast

-1541 %

January 31 00:00 UTC 288351288351m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Bln AR bln ARS

January 22 19:00 UTC 300171300171m

ARTrade Balance

Actual

Forecast

-1541 %

January 31 00:00 UTC 288351288351m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Bln AR bln ARS

January 31 00:00 UTC 288351288351m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Bln AR bln ARS

January 31 00:00 UTC 288351288351m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Bln AR bln ARS

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