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Apr 03 - 03:55 AM

EUR/USD - COMMENT-Seasonal Trends Favour EUR/USD Options Sales Until May

By Richard Pace  —  Apr 03 - 02:20 AM

Historical trends reveal that EUR/USD FX option implied volatility typically declines in April, then experiences a strong rebound in May, with recent market movements hinting at a potential repeat of this pattern.

The EUR/USD option implied volatility premium for USD calls over puts as observed via risk reversal contracts has reached its peak for the year 2024, suggesting that increases in EUR/USD implied volatility are linked to gains in the USD, and vice versa.
Consequently, any recovery in the EUR/USD spot rate is likely to suppress implied volatility, which has recently seen a slight rebound from its pre-Easter and two-year lows.

On Tuesday, benchmark 1-month EUR/USD FX option implied volatility climbed to 5.7, up from a two-year low of 4.9 observed last week.
This resurgence is bolstered by the inclusion of the May 1 Federal Reserve announcement and by heightened volatility risks stemming from Friday's NFP data, next Wednesday's U.S. CPI data and a stronger USD at the week's outset.
Similarly, 3-month and 1-year EUR/USD implied volatilities ascended to 5.55 and 6.3, respectively, on Tuesday, recovering from their two-year nadirs of 5.3 and 6.1 last week.

Should the upcoming U.S. data underperform expectations, a retreat in the USD could propel EUR/USD into more familiar ranges.
According to the risk reversals mentioned, such a scenario would likely lead to a decrease in implied volatility and present renewed buying opportunities for a potential rebound in May.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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