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#FED U-Turn in monetary policy should keep us FX traders happy


Historically the beginning of summer sends markets, especially the FX market in a ‘summer lull’ but this summer may be different given this week’s FED dovish stance. We maintain that FX volatility is likely to increase during the summer and healthy trading opportunities to arise as currency pair ranges expand.

1. USD Index – Range continues to expand as investors re-shuffle positions within their portfolios

2. FX Volatility set to rise from a low base


N.B: CVIX is the Deutsche Bank Currency Volatility Index. Similarly to the Chicago Board Options Exchange Volatility Index (VIX), which measures the implied volatility of equity markets (based on the S&P 500), CVIX measures the implied volatility of currency markets. Thus, it is a measure of the market’s expectation of future currency volatility and can be used as a benchmark of risk appetite. In order to give a broad representation of expected future volatility in currency markets, CVIX is calculated based on a the 3m implied volatilities of 9 major currency pairs. The currency pairs and their weights are listed below: EURUSD 37.84% USDJPY 18.92% GBPUSD 12.16% AUDUSD 8.11% USDCAD 6.76% USDCHF 5.41% EURJPY 4.05% EURGBP 4.05% EURCHF 2.70%. CVIX contracts trade as futures. Each future is a single contract that represents a basket of forward starting 3m volswaps. Taking a position in a CVIX future is a simple and transparent way to gain a broad exposure to the overall level FX Volatility in developed markets, weighted according to the FX vol