15 Jul 2014
Market is ill-prepared for strong EUR/USD fluctuations - Commerzbank
FXStreet (Córdoba) - Ulrich Leuchtmann, analyst at Commerzbank notes that while, near-term, the currency market is obviously right in expecting no more than minor fluctuations in EUR/USD it appears too complacent when it comes to the long-term risks.
Key Quotes
“The very low level of implied 1m volatilities in EUR/USD shows that the market is expecting EUR/USD in the next four weeks to show the lowest volatility since the start of EMU”.
“This is by no means implausible. As a result of forward guidance, uncertainty surrounding central bank policies is currently much lower than usual and this is unlikely to change much over the next 4 weeks”.
“However, the fact that longer-term volatilities are very low is pointing to the fact that the market might be too complacent”.
“We certainly do see event risks in the next twelve months. For instance, the US central bank might already have raised its key rate in July 2015. And the ECB may have pushed itself to start its own broad-based asset purchase programme (QE)”.
“The low level of implied EUR/USD volatilities for long tenors indicates that the currency market is ill-prepared for strong EUR/USD fluctuations.”
Key Quotes
“The very low level of implied 1m volatilities in EUR/USD shows that the market is expecting EUR/USD in the next four weeks to show the lowest volatility since the start of EMU”.
“This is by no means implausible. As a result of forward guidance, uncertainty surrounding central bank policies is currently much lower than usual and this is unlikely to change much over the next 4 weeks”.
“However, the fact that longer-term volatilities are very low is pointing to the fact that the market might be too complacent”.
“We certainly do see event risks in the next twelve months. For instance, the US central bank might already have raised its key rate in July 2015. And the ECB may have pushed itself to start its own broad-based asset purchase programme (QE)”.
“The low level of implied EUR/USD volatilities for long tenors indicates that the currency market is ill-prepared for strong EUR/USD fluctuations.”