One-month euro/dollar option volatility fell to 10.2% last Wednesday after having traded as high as 10.8% late the previous week. Concern over how the U.S. advance into Baghdad would play out triggered foreign exchange player's fears leading into the weekend of April 5. The nervousness lifted last Monday and vol was subsequently pushed down to 10.5%, according to a New York-based trader. The euro traded at USD1.07 last Wednesday, unchanged from the week before.
The approaching Easter holiday, which generally represents a quiet trading period, was the primary influence on strategies last week, said a trader. Fewer short term plays were executed, which in turn placed downward pressure on short-dated options. Players such as hedge funds continued to be active, buying medium-dated euro-calls.
Larry Brickman, foreign exchange strategist at Bank of America in New York, said the fx market has been moving on the back of war news, but traders are now starting to put less emphasis on the war. Negative economic data, including disappointing payroll numbers and corporate profit warnings, is in the back of traders' minds and this is putting downward pressure on the greenback. The dollar may still strengthen in the coming month depending on news from Iraq, although the euro is expected to continue its upswing, hitting USD1.15 by year-end, Brickman concluded.
EUR/USD Spot & One-Month Implied Volatility
