One-month euro/dollar volatility inched up to 10.6% last Wednesday, from 10.2% the previous week. The upward volatility trend arose from movements in spot, which saw the dollar weaken to USD1.14 Wednesday, down from USD1.11 the week before, according to a trader in New York. Over the past week yield plays have been the talk of the market, with money flowing into the euro as players chase higher yields, said the trader. Volatility on one-year options jumped to 10.5% from 10.2% over the same period.
Most option buying was traders taking on at-the-money options, with few directional or speculative trades executed. Spot movements were mainly influenced by long term euro buying, with rumors circulating that a central bank in the Middle East was the main culprit pushing the single currency higher, by making a large long-term euro purchase. Short- and medium-term players were largely absent. The euro is likely to continue its upward move, reaching as high as USD1.18 in the next month.
Larry Brickman, foreign exchange strategist at Bank of America in New York, agreed the dollar will continue to lose value against the euro, falling to USD1.17 by year-end. Although BofA is not bullish on Europe, economic weakness in the euro zone is also likely to impact on the greenback, with less cash from the continent flowing into the U.S., he noted.
EUR/Dollar Spot & One Month Implied Volatility
