That was almost a precision landing today: “Vols are likely to rise even further, straight towards parity. In this scenario ATM Vols should be closer to 11.50%/75% or even higher” (Market update #10).
With today’s EURUSD first clearly dip below parity (0.9952 lod) implied Vols reached my stated goal on average. Short-term tenors (1mth to 3mth) were quoted a fair bit higher and longer tenors (6mth to 1yr) slightly lower than the range quoted above. The Vol table (see below) shows the quotes at 08:50 NY time and Vols have already come down since then.
(source: cme group, own representation)
At this now comparatively high level, the Vol long call is over for me for the time being. With parity falling, the tension is gone and reality can set in. With this I do not want to make any statement about the further development of the Euro, but only to express that another dip does not automatically result in even higher Vol levels.
Nonetheless, I don't think the Euro will recover quickly without some extraordinary news. The end of the week will certainly be interesting tomorrow. If the Euro ends the week below par, I will take that as another bearish signal. But I will keep my hands off the Euro, which brings us to the next important point:
I will be in France for the next three weeks on an extended summer vacation. Thank you for your interest and subscriptions again. I would be happy if you would stay with me as a loyal reader until then!
All the best,
Sebbo