One-month implied volatility on the euro/dollar jumped to 9.8% last Wednesday from 9.6% where it had traded the previous Thursday. The volatility move came as the euro rallied against the greenback, in spite of positive employment data released by the U.S. the previous Friday, noted a trader. The euro was trading over USD1.16 last Thursday, a two cent increase from before the data was released, he said.
In addition to the employment news, U.S. equities were performing strongly making the dollar weakness confusing, said the trader. While the week before trading had centered on the purchase of euro puts/dollar calls, this trend reversed. In the short term, the euro will likely sit in a range, between USD1.12 and USD1.18, the trader predicted.
T.J. Marta, foreign exchange strategist at Citigroup Global Markets in New York, agreed that the euro's strength against the dollar was surprising. The employment report on Friday was a strong piece of data that the firm had thought might help shift the market's perception about a U.S. economic recovery, he noted. Citigroup continues to believe that the market's perception of the U.S. recovery is not consistent with reality and is bullish on the dollar for the next few months. The firm expects the currency pair to trade around USD1.10-1.11 by early next year, he said.
EUR/USD Spot & One Month Implied Volatility
