Scandi FX Volatility Monitor - EUR/SEK Vol. Likely To Grind Lower From Low Levels
Danske Markets | Feb 18, 2019 07:53AM ET
Implied volatility has been trading mostly sideways over the past week both in the G4 and in the Scandi FX space. As such, FX volatility remains in cheap(ish) territory and from a risk/reward perspective, we still see value in buying e.g. 3M (NYSE:MMM) EUR/SEK straddles or put spreads.
However, this week's release of Swedish CPI (Tuesday) and RB minutes (Friday) are not likely to change the trend for a weaker SEK (see FX Essentials: RB minutes and CPI data won't turn trend for a weaker SEK , 18 February) and given that realised FX volatility remains subdued (globally), we believe that implied 1-3M EUR/SEK vol. could continue to decline further this week.
Moreover, as we also argued in last week's edition of Scandi FX Volatility Monitor , it will most likely require a break above 10.60 in EUR/SEK at this stage to trigger a significant isolated increase in EUR/SEK vol. Hence, we prefer to await (potentially) better entry levels (lower impl. vol.).
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