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FXO Market Update - Mar 08

Mathias-Alrixon-400x400
Mathias Alrixon

OTC Derivatives Trading

Summary:  Vol continue to trade higher with EUR and CEE3 vol in high demand. EURUSD 1 month traded up to 12.6 yesterday with spot on the lows. Both EURHUF and EURPLN vols trades around 19.0 vol as spot printing new highs every day in a very illiquid market. Vol trades with a high risk premium with only Scandie crosses trading at fair value.


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.

08_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.
08_MAAL_2
Source: Bloomberg, 1 month vol, Blue: EURUSD, Black: AUDUSD, Green: EURPLN, Yellow: EURHUF, Red: XAUUSD

We continue to see vols trade higher with EUR and CEE3 vols in great demand. Vol of vol is extremely high for G10, both for ATM vol and the skew. Any new lows in EUR or negative headlines makes vol and risk reversals spike higher. EURUSD vols makes new highs for every new low print in spot. We see the same aggressive move lower in vol as soon as spot moves away from the lows. EURUSD 1 month is generally marked 1 vol lower if spot moves 100 pips up from the lows. EURUSD 1 month traded up to 12.6 yesterday with spot on the lows, up almost 2 vol from Friday close. Today 1 month has traded back to 12.0 as spot has moved higher. Vols are closing in on the highs from March 2020 and the peak of the Covid crisis when EURUSD 1 month traded up to 15.50 high.

So far we haven’t seen any attempt to sell CEE3 vols which are trading higher for every day as spot under pressure. Both EURPLN and EURHUF 1 month trades around 19.0 vol, compared to 6.0 and 8.0 at the start of Feb.

Also important to note is that we don’t see the typical risk off moves that we normally see. AUD usually get sold off in a risk off scenario and trades with a high correlation to the stock market. This is not the case now with AUDUSD trading higher over the last month, supported by higher commodities. AUD vols still trading higher as market in risk off but spot is not close to realize the same as the high implied vol and AUDUSD risk premium is 1.5 vol.

XAU spot is trading higher as you could expect in a market like this and vols are trading higher. 1 month XAUUSD trades at 27.50 compared to 13.0 at start of February. XAG spot is trading higher as well but not as aggressive as XAU and still trades within last year’s range, XAG 1 month trades at 40.0 compared to 26.0 a month ago. Both XAU and XAG vol trades with a risk premium of just above 10 vol.

Even if the RUB market is close to non-existing it is still trading some option contracts from time to time in the interbank market. Last we seen was USDRUB 1 month at 105/145 yesterday.

08_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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