One-month euro/dollar implied volatility slid downward last week as the dollar slowly made a comeback against the single currency. Last Wednesday implied vol on the currency pair traded at 9.9%, down from 10.5% the week before, according to a New York-based trader. The euro/dollar spot rate fell to USD1.15 to USD1.17 in the same timeframe, he said.
An announcement on Oct. 31 that the U.S. gross domestic product had grown by an annual rate of 7.2% reversed the bearish trend of the U.S. currency, said the trader. Going into the end of last week all eyes were fixed on employment figures scheduled for release last Friday, which is expected to set the tone for future directional plays on the currency pair. In the short-term, the dollar strengthening is expected to continue, spurring the purchase of short-dated euro calls/dollar puts with strikes of USD1.135 and USD1.14. Longer term, however, the euro will likely regain its strength pushing the exchange rate back towards USD1.19, he predicted.
Michael Rosenberg, global head of foreign exchange research at Deutsche Bank in New York, predicted that spot will move back to between USD1.18-1.20 by year-end. Employment data released last Friday could support the dollar, however, he said most positive news for the dollar from this has already been factored in by the market. In the long term, the greenback will continue to be weighed down by the U.S.' large current account deficit, he said.
EUR/USD Spot & One-Month Implied Volatility
