EUR/USD: Implied volatility hits 12-month low

EUR/USD's one-month ATM volatility, which measures the calculated or implied mid-rate volatility for an at-the-money (ATM) option for a specific expiration date, fell to a 12-month low of 5.30 on Monday, according to Reuters (code: EUR1MO)

Implied volatility (IV) tends to rise during bear markets and drops during bullish trends. The ATM volatility's decline from the October high of 8.96 has happened alongside EUR/USD's rise from 1.18 to 1.2349. 

While the IV has declined, it is still hovering well above lows near 4.00 observed in January 2020. 

However, readers should note that an extended period of low volatility often paves the way for a big move in either direction. Traders usually buy both call and put options ahead of potential volatility explosion.