Currency Volatility Remains Subdued Despite USD Breakout
The US Dollar has continued its climb with the greenback now firmly above the 91.00 handle, which in turn has seen EUR/USD trip below the psychological 1.2000 level. That said, looking at the options market, implied volatility remains at relatively subdued levels, with the Euro 1-weekly implied volatility at a 43% 1-year percentile. As such, should USD upside persist, the move is likely to be a drift higher as opposed to a sharp acceleration. The table below shows the implied daily and weekly % move. Of note, there is a pick up in the GBP vols given the Bank of England meeting.
Source: Refinitiv, DailyFX
USD/JPY Eyes 200DMA
Whatever major pair you are looking at, it is evident that the US Dollar is in recovery mode as key levels break. USD/JPY has broken through its downtrend and now edging towards the 200DMA (105.57) where the move higher has been underpinned by the rise in US yields. Keep in mind that USD/JPY is one of the most positively correlated major pairs with US Treasury yields. The first real test for this recent uptrend will be resistance 105.55-65, which may prompt signs of exhaustion.
USDJPY Chart: Daily Time Frame
USD/JPY Implied volatility levels
Euro Cracks 1.20
Going back the Euro, risks remain tilted to the downside, particularly if there is a close below the 1.2000 handle. Of note, there is around 1yard of option expiries at 1.2000-05, which in turn may see spot price magnetised around the 1.2000 handle until the 10am New York cut off. In the short-term support is situated at 1.1978, marking the 50% Fibonacci retracement (Nov 2020-Jan 2021 rise). Taking a closer look at the option implied levels, the Euro is currently holding the implied low 1.1986.
USD Chart: Daily Time Frame
EUR/USD Implied volatility levels