1 Aug 2013
Flash: Volatility and the dollar – BAML
FXstreet.com (London) - John Hopkinson at BofA Merrill Lynch said following a July payrolls report that reinforced the view for September tapering, volatility has declined substantially in FX markets.
Key Quotes:
“This decline is most likely a result of Bernanke remaining dovish, together with expectations of a seasonal slowdown in trading”.
“Our analysis shows that lower 1y implied volatility has historically been a significant negative factor for the dollar on a 4-8 week horizon”.
“Does this mean that the options markets are expecting a relatively weak payrolls number this week that will extend the recent dollar weakness? To answer this question we need a deeper understanding of the relationship between volatility and the dollar”.
Key Quotes:
“This decline is most likely a result of Bernanke remaining dovish, together with expectations of a seasonal slowdown in trading”.
“Our analysis shows that lower 1y implied volatility has historically been a significant negative factor for the dollar on a 4-8 week horizon”.
“Does this mean that the options markets are expecting a relatively weak payrolls number this week that will extend the recent dollar weakness? To answer this question we need a deeper understanding of the relationship between volatility and the dollar”.