Credit: REUTERS/DADO RUVICAug 26 (Reuters) - FX traders can find clues on the EUR/USD outlook from the FX options market, given its forward-looking nature and focus on volatility and direction.
Implied volatility gauges future actual volatility and is key to option premiums - it's higher in very short-dated expiry options, highlighting the volatility risk from Federal Reserve Chairman Jerome Powell's opening speech at the Jackson Hole symposium on Thursday .
However, one- to 12-month implied volatility is falling this week, highlighting the lack of actual volatility and inability of EUR/USD to break from recent ranges or extend recent and two-year highs. Benchmark one-month implied volatility is 7.7 from 8.0 this week, still well above mid-August lows at 7.1.
Risk reversal contracts show implied volatility premium for EUR calls over puts (topside) has eased from multi year highs, but remains strong, especially in medium-longer term contracts, suggesting dealers still see more risk of EUR/USD gaining than falling.
Huge 1.2000 barriers are key to more potential gains, so expect fresh demand for options if the threat grows of this level breaking.
Related
For more click on FXBUZ
(Richard Pace is a Reuters market analyst. The views expressed are his own)
((Richard.Pace@thomsonreuters.com))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
