Market started the week in risk off with EUR hitting new lows on Monday and EURUSD 1 months trading up to 12.60. We have since then seen a rebound in risk with equities higher and safe heaven currencies marked lower. EURUSD spot has rebounded from the lows just above 1.0800 to now trade 1.1050. CHF and Gold has sold off with EURCHF trading below par on Monday to now trade at 1.0250 while XAUUSD topped out above 2060 to now trade below 2000 again.
Vols have adjusted lower with spot trading away from the extremes, EURUSD 1 month down 2 vol from the highs, currently trades 10.40. XAUUSD 1 month was trading around 29 vol on the highs to now trade 23.50 while EURCHF 1 month is down 1 vol to now trade 9.25. Risk reversals following vols lower with 1 month EURUSD risk reversals trading 1.8 for downside while it was 3.65 on Monday.
We have ECB today and FED next Wednesday so the front end still trades supported, EURUSD 1w at 14.0. Market is also reluctant to be short options over the weekends and Mondays are still in good demand.
CEE3 vols have also been marked lower for the first time in two weeks as spot trades away from the extremes. Both 1 month EURPLN and EURHUF down 1.5-2.0 from the highs.
Risk premiums have come lower as implied vols trades lower while realized holing up, we have seen big spot moves in risk on direction. EURUSD now trades close to fair value, implied and realized vol the same, while Scandies still looks cheap. USDJPY spot has not moved much over the last weeks and spot still in the last 6 months range. USDJPY risk premium trades at 1.25 vol.
The good thing is we see tighter spreads in the market as spot has calmed down and vols trades lower. Spreads for 1 month and longer contracts has tighten considerably over the last days while the very front hasn’t come in as much.