Despite the FED raising interest rates by 75 basis points on June 15th, the Euro was able to defend the 1.0340 support zone. Since then we have seen a recovery, which has been rather small so far. Nevertheless, the Euro is trading around 200 pips higher at time of writing, but still below the 1.0600 treshold. In the short-term, the EURUSD chart provides a number of resistances that the currency pair must clear for a major recovery. In addition to the 1.0600 mentioned, these include the mid Bollinger band (1.0622), the former support/resistance at 1.0636 and the 50 ema (1.0664).
Two weeks of important central bank meetings are behind us and the summer holidays are just around the corner. It would therefore not surprise me if the market loses some volatility and continues the movements of the past few days due to a lack of fresh impetus. If this materializes, implied volatilities could fall a little further from current levels. In this respect, it could be worthwhile to have a little patience to buy protection. But overall, I have no idea what could boost the Euro in the medium term.
The ECB made clear last week that it is ready to intervene and discriminate between member countries by buying peripheral yields in particular. The announcement to overturn the market mechanism again before there was even a small interest rate hike, will not boost confidence in the Euro price stability and the functioning of the Eurozone as a whole. I therefore consider the current Euro recovery to be limited and recommend buying downside protection if there is a real need for hedging.
(source: cme group, own representation)
Compared to the last Market update, implied Vols have come down between 0.75% to 1.75% (Puts otm) on the same spot level. So today it is already cheaper to hedge against lower prices. With some calmer days ahead, implied Vols could drop another 0.25% to 0.50%, but I don't expect much more for now. In particular the 25 delta FX put options look well anchored around 10% with a not too expensive premium compared to the ATM options.
Short-term players can of course wait and see more easily. But as always, without real exposure, FX options should only be traded with delta hedge. Above 1.0700, the Euro could gain a good bit again. Then you can always (partial) close your hedges on the way up.
Good luck,
Sebbo