Short-dated euro/U.S. dollar implied volatility fluctuated last week because of uncertainty over the German general election result and the approach of Hurricane Rita to the U.S. Gulf Coast. Directional trading flows were thin, however, traders said. One-month euro/dollar implied vol jumped to 9.05% on Monday from 8.75% the week before, and then returned to 8.67% on Wednesday. "It's swinging and swaying," said one trader at a European house.
Traders said dealers chose not to go long or short euro/dollar because the German election failed to dramatically alter spot. "Spot is busy going nowhere fast," said one currency official, adding, "It tried to go up, but didn't really get there and then tried to go down and didn't really do that either." The single currency stood at USD1.2227 against the dollar on Wednesday, gaining ground from USD1.2148 on Monday. Speculative accounts who did buy options were opting for one-month or shorter euro puts and calls with at-the-money strikes, traders said.
The lack of euro/dollar direction was in line with a general calm in over-the-counter foreign exchange derivatives market. "Every currency pair was well and truly range bound," said one trader.
