FxVol Weekly
20 - May - 2022
EURCHF looks to have topped out in the near term and the sentiment has shifted with the sharp decline in the EURCHF risk reversal. If we see a second move to 1.00 or close by either a Six month or 12 Month EURCHF call spread or EURCHF condor would look attractive. We would be more inclined to look at the call spread and look to turn it into a Condor at a later time.
The other strong indication that CHF sentiment has shifted is in the sharp move lower in the EURCHF risk reversal, particularly the one month as shown above. Our one-year USDCHF long USD call option expires on Monday. We captured approx 2/3 of the move off the lows and we were patient with our delta hedging. We could have banked a larger profit if we had left the position unhedged but as regular readers know we did not do this and the reasons are based on our internal research. The probability of mean reversion of exchange rates increases as the maturity lengthens and so we tend to be more aggressive with respect to hedging longer-dated options.
Short-term yen momentum breaks par.
CADJPY dispersion continues to move lower but looks to find a bottom. We may well be close to the end of the sideways consoldiation.
The spreads between implied and actual vol remain high at the backend of the EURCHF curve. As mentioned above, fading the EURCHF trend is very much the same in our view as fading EURCHF implied vol.
Clear EURCHF double-top with our longer term dispersion rolling over.
Two weeks of GBPUSD under 10% may be a good deal even though the implied vols clearly are declining on the GBPUSD recovery.
GBPCAD is trying to break the declining trend line. One trade may be to buy GBPCAD 100% forward and hedge it with an ATM forward GBPPUT CAD call.
Our dispersion indicator suggests that we may have a short term bottom in place in GBPUSD.
Still more tentative signs of EURGBP bottoming out contrary to EURCHF.
Short term Yen momentum turns negative.
While Yen dispersion continues to decline. Both imply that the top in USDJPY is in place.
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Research Director
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