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No Clear Choices for Currencies in the Year AheadUsing Implied Vol

Posted by WorldWideMarkets . on Oct 9, 2013 3:41:00 AM

A quick review of implied volatilites across the major pairs in the dollar from one week to one year shows that options investors are not betting on any big moves in one pair over the other in the year ahead.
   Implied volatility in the currency options market is sometimes used as an indication of future price direction in the spot market within a specific time period. Volatility tends to fall when investors expect a currency to range trade.
   While most implied volatilities have been falling in recent months what stands out now is that there is very little difference between the one week and one year volatilities in specific pairs. For currency investors to make money, one pair or currency in a pair must do better than another. In the current situation it may mean that growth across most of the developed economies will be more or less consistent everywhere or that the major banks such as the Bank of England, the Fed and the European Central Bank will all start to end stimulus within months of each other rather than the Fed be far ahead of the others as had recently been expected.
    Data examples are euro/U.S. dollar, one week implied volatility 7.5 compared with one year 8.65;
                                  U.S. dollar/yen, 10.45 versus 11.13;
                                  sterling/U.S. dollar,  8.08 against 7.83; 
                                  U.S. dollar/Swiss, 8.53 versus 9.71;
                                  U.S. dollar/Canadian dollar, 5.88 versus 7.03;
                                 Australian dollar/U.S. dollar, 9.28 versus 10.39;
                                 New Zealand dollar/U.S. dollar, 10.48 versus 11.65;
                                 U.S. dollar/Norwegian crown, 12 versus 11.25;
                          and U.S. dollar/Swedish crown, 10 versus 10.85.

trading the dollar


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