Implied volatility on the euro/dollar currency pair nudged up last Wednesday as the dollar depreciated against the euro. One-month implied vol climbed to 11.4% Wednesday, up from around 11% where it traded the week before, according to a New York-based trader. The dollar fell to USD1.22 from USD1.18 during the same period.
Although the Federal Reserve decision to leave interest-rates unchanged was widely expected, it encouraged some weakening of the greenback, the trader said. Nervousness ahead of the release of non-farm payroll employment figures, scheduled for after DW went to press on Friday, also worked against the dollar as did a general lack of conviction over whether the U.S. is really undergoing an economic turnaround, he added. Option activity concentrated on protecting dollar positions, with a popular trade being to purchase dollar puts/euro calls, the trader said.
T.J. Marta, foreign exchange strategist at Citigroup Global Markets in New York, said the greenback looks to have hit its highs for the year, saying the euro will continue to strengthen. Citigroup predicts the euro will climb to USD1.25 over the next three months and to USD1.28 in a year. The market has already priced in as much tightening of interest-rates in the dollar as could reasonably be expected, he noted. The Euro also has strong technical support, he added.