technical analysis

FXO Market Update - Apr 13

Mathias Alrixon

OTC Derivatives Trading

Summary:  Vols have traded lower over the last week. USDCHF vol still trades with a large premium over EURUSD vol after the rally we saw in February. We see USDCHF vols to trade lower and the spread against EURUSD vols to tighten with spot now back down at 0.9200 area.


Saxo Bank publishes two weekly FX Options Market Update reports covering changes and updates on the FX Options and FX Volatility market. They describe changes in FX volatility levels, risk premium and ideas how to trade based on these.

13_MAAL_1
FX volatility, source Saxo Bank. Vol column: At-the-money volatility for the given maturity. 1w column: Change of the at-the-money volatility for the given maturity over the last week.
13_MAAL_2
Source: Bloomberg, Blue: USDCHF spot, Black: USDCHF - EURUSD 1 month vol-spread

Vols are trading lower in FX as yields have stabilized after a strong rally during the first quarter and the stronger USD trend that we saw during the first months of the year has come to a halt. USD has traded weaker over the last weeks but has not been able to build any momentum and spot has generally been range trading over the last sessions.

CHF has traded stronger over the last week which in combination with a weaker dollar has made USDCHF drop over 2%. Spot has traded back to the top of the old range that we saw from August last year to February when the CHF sell-off started.

USDCHF 1 month trades at 6.4 vol, compared to a low of 5.4 vol in middle of February. USDCHF 1 month vol trades 0.7 vol over EURUSD and we usually don’t see this big of premium last too long. CHF had a quite aggressive move at the end of February and spot has now reversed about half of that move. We expect vol to come lower and the spread against EURUSD vol to come in with spot almost back to the low vol range we saw from August to February.

Sell 1 month 0.9100 USDCHF put
Receive 18 pips

Sell 1 month 0.9400 USDCHF call
Receive 16 pips

Spot ref.: 0.9250

13_MAAL_3
Source: Saxo Bank
  • The Top/Bottom charts shows the top 5 and bottom 5 values/changes for at-the-money vol, risk reversal (RR) and risk premium of the 45 currency pairs we are tracking.
  • Risk premium: Implied (Imp) minus realized volatility. A positive risk premium means implied volatility trades above realized volatility, i.e. the implied volatility can be seen as “rich”.
  • Change: The difference between current price/volatility and where it closed 1w ago.

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