Forex Investment and Currency Trading

Implied volatility patterns are erratic across currency blocs with little conclusive evidence of a strong unified theme emerging. So far, vol spreads (implied vols vs. historicals) for several more active currencies indicate historical volatility has yet to fall substantially in line with implieds. Liquidity conditions remain weak though slightly improved from several months back and this will only get better only slowly over time as more risk is put back on. Pure volatility plays, especially in short dates, are still a little premature at this juncture, and so continue to favour smaller, conservative directional positions for now, in anticipation of [...]

[Read more →]

With the holiday season approaching, and implied volatility at very high levels given the actual volatility we have been seeing in the market, there are definitely opportunities for some rewarding trades if we do see the currency market calm down as it so often does at this time of year. We can
see this in the charts below of USD/JPY spot that in the last 20 days has behaved relatively calmly yet implied vols are still historically fairly high. We can also see implied vols declined last year at the end of November until the beginning of January. Suggest a couple [...]

[Read more →]

The recent financial storm and the liquidity injection by the Fed has proven to be USD negative as the market begins to digest the implications of the financial bail-out by the US government. At the same time, EUR/USD has rallied by more than 7% since the lows of 11th September, from 1.3882 to current levels of 1.4725. With the raised probability of a possible 25bp ECB rate cut in March 2009 from 30% to 40%, the following strategies below could help hedgers lock-in the USD weakness whilst still leaving potential for further EUR/USD appreciation.

EUR/USD Hedge 1
Position: Long a EUR Put [...]

[Read more →]

USD/KRW spot has been extremely volatile of late, on the back of the broad emerging weakness as well as intervention effort by the central bank. 1-month implied vols has gone from 16 vols a couple of weeks back to 23 vols now. In the near term, given the spillover effect of the meltdown in US equities and the continuous foreigners outflows from Korean equity market , we should see USD/KRW spot continue to drift higher possibly testing the recent 1159 high seen on September 3. As such, the follow strategy is recommended to take advantage of the high risk
reversal and [...]

[Read more →]