In a quiet options market after the holiday weekend, one-month euro/dollar implied volatility spiked to 8.2% from 7.5% Tuesday before falling back to 7.8% by Wednesday afternoon. Traders said the dollar weakened against major currencies across the board as option buyers were looking for a safe haven due to uncertainty caused by tension in the Middle East. Common trades saw investors looking to buy euro calls/dollar puts with strikes between USD0.88-0.93. Spot was trading around USD0.87 when the option went through.
Similar reactions were seen in other currencies paired with the dollar, for example investors were buying Swiss calls, said one London-based trader.
Ian Stannard, a foreign exchange strategist at BNP Paribas in London, said most of the movement in euro/dollar options was due to the rise in oil prices to approximately USD27 per barrel and there is a perception that has been driven by Mid East tension. He cautioned, however, that some of the rise in oil prices has actually resulted from higher demand for oil in a recovering economy, which could eventually be a supportive factor for the dollar. Therefore, if unrest in the Middle East subsides, the dollar will gain support, he added.
