Short-dated euro puts were being snapped up late last week after the U.S. dollar gained ground against the single currency and dealers closed out short dollar positions. The greenback rose to USD1.2270 on Tuesday from USD1.2549 the week before, causing a market largely devoid of direction to jump on the move, traders said. "With the change in spot people shifted from buying euro calls to buying euro puts," said one currency official.
Traders reported players buying predominately one-week contracts with strikes between USD1.20 and USD1.21. Implied volatility for the same period rose to 8.99% on Wednesday from 8.41% the previous week. A trader at a European house also noted the sale of three-month euro puts with strikes around USD1.15. "This shows people are nervous about the downside of euro/dollar," he said. Another trader added the market was positioning itself ahead of the weekend's general election in Germany and this week's U.S. Federal Reserve interest rate meeting. "Everyone is trying to play the dates of these key events," he said.
Currency strategists agreed the market lacks definite trends and players are therefore steering clear of long-dated views. "People are trying to get involved in any movement and getting chopped back and forward," said one official, who said the Federal Reserve's decision on rates will bring back direction and liquidity to the market. "The German election will also bring a few surprises and market movements," predicted another trader.
