FX option trading accounts were snapping up short-dated euro/polish zloty straddles and euro/Hungarian forint puts last week after key barriers were broken in both currency pairs. Traders said the significant shifts set volatility see-sawing and unnerved the market as the movement comes on the back of continued emerging market volatility (DW, 3/20). "There is a lot of vol and they are very well bid," said one trader.
The zloty passed the magic number of PLN3.9250 against the euro Tuesday. Once the level was breached, it continued to drop to close at PLN3.95 Wednesday, officials said, spiraling from PLN3.89 the week before. "If it breaks the PLN3.96 mark then people will be even more nervous," said one trader, who noted straddle buying at one- and two-month expiries. One-month implied volatility for the pair moved from 9.916% to 11% on Tuesday before falling again to 10.4%.
The forint dipped to a two-year low of HUF267.66 against the euro on Wednesday, flying past the key HUF265 mark. One trader said players were piling into forint puts with strikes from HUF270 to HUF280 and maturities of between three and six months. "HUF275 is now the next target," said another trader. Strategists at BNP Paribas forecast in a report the cross would settle to HUF256 by the end of quarter one.
Richard Reid, strategist at Citigroup in London, said forint depreciation has been triggered by a combination of uncertainty over the country's general election result, fears of an inflated account deficit and its links with the volatile zloty. He also noted firming rate expectations by the European Central Bank are causing players to look for opportunities against volatile currencies, and forint is their first choice in Europe.
