15 Jul 2015
EUR/USD's modest moves over Greek debacle - BBH
FXStreet (Guatemala) - Analysts at Brown Brothers Harriman explained that it’s worth noting how much smaller the reaction in EUR/USD implied volatility has been during the latest stage of the Greek crisis when compared with 2011.
Key Quotes:
"Moves have been relatively modest even when Greece was on the verge of leaving. This may suggest that markets have accepted the premise that Europe is better prepared for systemic shocks this time around."
"Zooming into the last few months, risk-reversals show that demand for protection against further EUR downside risks has been reduced to pre-referendum levels, but it hasn’t made material gains beyond that (see second graph). Meanwhile, implied volatility for the cross is still well within the range seen since March, after having climbed steadily from a low of 4.2% in August 2014 to around 12% now.
"Although notoriously difficult to interpret, the recent price action in the options markets suggests two non-exclusive possibilities: (1) FX markets are far from pricing out EUR downside from the Greek crisis; and/or (2) lower downside EUR risks from the Greek deal is being counterbalanced by the re-emergence of Fed-ECB differential theme, maybe following Yellen’s recent comments about the timing of the first hike."
Key Quotes:
"Moves have been relatively modest even when Greece was on the verge of leaving. This may suggest that markets have accepted the premise that Europe is better prepared for systemic shocks this time around."
"Zooming into the last few months, risk-reversals show that demand for protection against further EUR downside risks has been reduced to pre-referendum levels, but it hasn’t made material gains beyond that (see second graph). Meanwhile, implied volatility for the cross is still well within the range seen since March, after having climbed steadily from a low of 4.2% in August 2014 to around 12% now.
"Although notoriously difficult to interpret, the recent price action in the options markets suggests two non-exclusive possibilities: (1) FX markets are far from pricing out EUR downside from the Greek crisis; and/or (2) lower downside EUR risks from the Greek deal is being counterbalanced by the re-emergence of Fed-ECB differential theme, maybe following Yellen’s recent comments about the timing of the first hike."