Implied volatility dictates the price of FX options, which thrive on actual volatility, but they are extending record lows across the entire one-month to one-year term structure.
That means the perceived risk of actual EUR/USD volatility is the lowest it's ever been.
Implied option volitility hit record lows in Q4 2019, which was no surprise after the tightest yearly spot range on record.
Extending those losses suggests dealers still see no sign of an imminent break-out.
Even historically volatile events, such as central bank meetings, are failing to attract any interest from option players, who are loathe to waste premium too far before an event nL1N29L05V.
However, at these levels, the amount of spot movement needed to cover premiums and reward holders is very small, so steeper declines are likely to be limited.
One-month straddles at 3.8 vols have a break-even of just 100 pips now! On the directional front, risk reversals still see EUR/USD gains more likely than losses, with three-month EUR call premium to puts at a one-year high nL1N29M05E.
Massive expiries a near term volatility killer nL1N29M056