FXO Market Update - Apr 07 FXO Market Update - Apr 07 FXO Market Update - Apr 07

FXO Market Update - Apr 07

Summary:  US rates higher over the last week after hawkish comments from FED. USD trades higher and EM currencies with MXN in particular trades weaker. USDMXN is up around 2% from Monday and vols trades bid after the move in spot.


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.

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.
Source: Bloomberg, Blue: USDMXN spot

Hawkish comments from FED over the last days have pushed rates higher, US10y up from 2.35 on Monday to 2.65 high yesterday. USD trades bid and the dollar index has pushed up above recent highs.

EM currencies have taken a beating with USDMXN up from 19.75 on Monday to current levels around 20.15. First resistance comes in at 20.28-20.30 level. 1 month vol is up from 9.85 to 10.75 while 1w is up 3 vol from Monday and now trades around 11.50. Risk reversals are higher after the 1.5% move in spot, 1 month risk reversal up 0.3 to 2.0 for topside.

We think USDMXN calls offer good value to sell after the move higher in spot, vol and risk reversal.

Sell 1 week 20.3000 USDMXN call
Receive 650 pips

Alternative

Sell 1 month 20.7500 USDMXN call
Receive 1,000 pips

Spot ref.: 20.1500
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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