Short-dated euro/dollar implied volatility spiked early last week on the back of a greenback rally in the spot market, following comments from Federal Reserve Chairman Alan Greenspan suggesting interest rates will be raised. One-month implied vol traded at 11.75% last Wednesday, up from 11.2% at the start of the week, although down from 11.95% where it had traded seven-days before, according to a New York-based trader. The currency pair changed hands in the spot market at USD1.184 last Wednesday. It had stood at USD1.195 the week before, he added.
The dollar's appreciation against the single currency comes on the back of a gradual strengthening since the beginning of the month. Most of the action was in at-the-money options with little directional trading. He predicted, however, that as bond prices continue to decline the dollar still has room to strengthen against the single currency and could increase to USD1.1 in the next couple of months.
Steven Englander, chief currency strategist for the Americas at Barclays Capital in New York, agreed that the dollar will continue to rally, predicting that the greenback could test the USD1.15 level over the next three months. It has not hit USD1.15 since November. Since the announcement of strong employment data in early March, currency trading has been largely based on macro data as opposed to concerns, for example, of Central Bank intervention, since the beginning of March, when strong employment numbers were announced, he noted. The forecast for the U.S. economy remains optimistic with employment appearing to be on track.
