Most of the benchmark 1-month implied volatility contracts for the major FX pairings are trading coronavirus crisis lows amid the U.S. holiday, reflecting the recent risk appetite and lack of actual volatility.
Massive stimulus and limited yield leaves most currencies side-lined while dealers wait to see the effects of lockdown easing on the growth recovery.
However, at current levels, there may be opportunities to benefit from volatility protection. nL1N2EA08T
Recent option flow has been USD negative, especially in EUR/USD nL1N2E909Z, which is no real surprise when looking at a recent Reuters poll which shows analysts see the dollar's dominance diminishingnL1N2EA07P.
After being pinned by 20-billion euro option expiries between 1.12-1.1300 this week, EUR/USD traders should be aware of another EUR 20-billion in this zone over the next 2 weeks, and EUR 20-billion 1.1300-1.1400, but significantly less to the downside, which may weaken potential EUR/USD support. nL1N2EA0AR
GBP/USD 1-month vol hit new crisis lows sub-8.0, and 1-month risk reversals have seen GBP put (downside) vol premiums fall to 0.7 from 1.4 over calls this week.
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