Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
OTC Derivatives Trading
Summary: Last week was volatile with several central bank meetings, where SNB delivered the biggest surprise with a 50bps hike. EURCHF dropped 2% on the announcement and vols spiked higher, 1 month trades 0.5 vol higher now than before SNB. GBPUSD vols also higher now compared to a week ago after a volatile week.
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.
Last week gave us a volatile week with several central bank meetings. SNB delivered the biggest surprise by hiking with 50 bps. FED delivered in line with expectations, BoE delivered a hawkish hike and BoJ was the outliner coming in on the dovish side.
Vols were bid going in to last week but it proved to be priced correct with most currencies delivered inline or excided expected spot moves. SNB delivered the biggest surprise and CHF vols trades higher now than before the meeting. EURCHF 1 month traded 8.0 vol before SNB and trades 8.50 now after spot sharply dropped 2% on the surprise hike. EURUSD 1 month is down around 0.5 vol from beginning of last week and USDJPY is down 1.5 vol, both pricing out the event risk. GBPUSD 1 month is 0.25 higher after a choppy week, despite both the FED and BoE events are prices out.
There are no big events in the coming weeks, US CPI first in 3 weeks. Bot EURCHF and GBPUSD vols are on the high side after last weeks move in spot and we think we will see vols gradually come lower over the next days. We see limited topside in EURCHF spot after the hawkish SNB and we like to sell EURCHF calls. Direction in GBPUSD is more difficult short term so we prefer to sell strangles.
Sell 1 week 1.0250 EURCHF call
Receive 20 pips
Sell 1 month 1.0400 EURCHF call
Receive 20 pips
Sell 1 month 1.2000 GBPUSD put
Sell 1 month 1.2400 GBPUSD call
Receive 175 pips
Spot ref.: 1.0175 and 1.2245
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