FxVol Weekly
01 - July - 2022
More and stronger signs of momentum divergence in the hourly JPY data. The technical indicator is supported by the fundamental weakness in US ten-year bond yields and clear signs of commodity price weakness seen by the end of the week. Long-term JPY momentum has not yet rolled over.
More supporting evidence from the daily dispersion indicator shows at least some preliminary signs of rolling over which suggests at minimum the JPY is likely to move sideways to lower.
Despite CADJPY failing to make new highs the back end of the CADJPY options market remains very well bid as the six and twelve-month implied vols remain at or very close to their previous cyclical high.
EURJPY daily dispersion is showing signs of weakness combined with the double top also implies further EUR gains vs the Yen are less probable. This may be a good time to look at EURJPY put spreads in the back end of the curve.
EURJPY's back end is also nearly back to the previous peak and spreads vs the actuals remain wide. Either a EURJPY put spread or an out-of-the-money Condor looking for a move back to a 125-130 range are two trades worth considering.
AUD daily dispersion rising s the spot is breaking into fresh lows. Meanwhile, CAD is holding up better as the market chatter is for talk of the possible 100bp BoC rise.
One-year AUD risk reversals break lower and according to our models, the 12-Month risk reversal is cheap for AUD calls relative to AUD puts Corporates that need to buy AUD should consider a risk reversal hedge as it can be established for a net vol credit and for a net positive cash inflow.
No sign yet of any turn in EUR long-term momentum. If 1.0350 support is taken out, the move to par should come quickly.
EUR spot vol correlation is also back to the previous lows, lends further support to the bear
And finally, GBPCAD momentum remains very negative in line with GBPUSD. We continue to hold the view that any change of government in the UK will be GBP positive as it may well lead to a softening of positions on the N. Ireland protocol and the terms of the Brexit deal.
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