Things look to have settled into a range. That will please some players, including, I’m told by Drew Niv from FXCM (see story), many retail punters; but not others, such as the trend followers. In an attempt to stem my growing reputation of being a reverse indicator, I decided to look at options and see if there are any clues for where the dollar might be going.
A chart of one- and three-month implied EUR/USD vol seems to reiterate that the market is range bound. But one mucker told me that it’s not quite as straightforward as it seems: “Vol is very choppy. The market is very thin at the moment, so moves don’t make sense. It’s not a time to be too clever.”
| EUR/USD vol gets whippy Historical analysis - EUR/USD for 23 Jan - 23 July 2008 |
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| Source: SuperDerivatives |
With correlations all the rage, I thought I’d discovered a real gem when I looked at spot USD/JPY and the three-month risk reversal. “Take a look at this,” I said to one prominent buy-side trader. “Is this relationship breaking down and what does it suggest about spot USD/JPY?” His reply was succinct: “It’s interesting, but I’m not sure what to make of it.