6 Sep 2013
Flash: EUR/USD volatility to diminish, though pointing lower – BoA-MA
FXstreet.com (Lisbon) - The Research Team at Bank of America – Merrill Lynch analyzes the short-term direction of the EUR/USD.
Key quotes
“Our analysis of volatility adjusted rates suggests that lower US rates volatility as a result of a reduction in uncertainty surrounding Fed policy is likely to be a catalyst for USD strength. In recent weeks, the EUR/USD implied volatility has switched to depend more on US rates than equities.”
“Therefore, we would conclude that EUR/USD volatility may decline on
Dollar strength, contrary to expectations from skew. This makes structures which sell the skew, such as digital puts, attractive as a way to short EUR/USD.”
Key quotes
“Our analysis of volatility adjusted rates suggests that lower US rates volatility as a result of a reduction in uncertainty surrounding Fed policy is likely to be a catalyst for USD strength. In recent weeks, the EUR/USD implied volatility has switched to depend more on US rates than equities.”
“Therefore, we would conclude that EUR/USD volatility may decline on
Dollar strength, contrary to expectations from skew. This makes structures which sell the skew, such as digital puts, attractive as a way to short EUR/USD.”