If you cast your mind back to June/July I wrote: “EUR/USD – Once you get to know me and how I think you will know that at times I am like a dog with a bone. I don’t let go, and so once again I will reiterate what I have said before, I really think Q3-Q4 will all be about the USD and I see the currency moving and breaking 1.3000 by year end. Yes, medium term projections but for me to take advantage why not do a calendar spread, selling 2x 1-2m VS buying 1x 4-6 months and so leg into the trade. If not 2×1 then how about 1×1, but remember you will have negative gamma but positive theta which in this environments works”.
Not only have we broken my 1.3000 target, we have “smashed” it trading at 1.2880 as I write this. I mentioned back in the summer that once the market comes back from their holidays (September) and start to reposition themselves, the USD will mount an almighty push, and this is exactly what we are witnessing, and then some. I have written over the past few weeks that my target for 31 December is now 1.2000 and looking at the trend, I see no reason why this should now materialise. All the recent rhetoric adds strength to my target especially Gov. Draghi who has said openly that “the EUR is too strong and needs to weaken vis-a-vis the USD”. The world order is changing, Economies globally are in vastly different stages of economic growth and this is aiding the moves we have and are seeing in the FX market.
If you are looking to BUY EUR v USD – wait. However do not be alarmed if we see a rebound before the next leg lower.
GBP/USD, really not much else to add to what has already be written by ParityFX and the market in general. YES-NO are neck and neck and like Quebec in 1995, this vote will go down to the wire. The NO vote has started to enlist the leaders of the UK parties to help swing the vote their way, while Alex Salmond is trying to use his good looks, wit and charisma to woo voters.
A NO win will ultimately see Scotland enjoy more independence and potentially ask for a a new vote in a few years. A YES vote will result in long and tense negotiations leading to independence a few years later….not before the GBP and potentially FTSE takes an almighty knock. There are so many issues that will have to be sorted if the YES vote wins, that it will take years to get back to normality. Scotland is part and parcel of the UK and needs to stay. Having said that they also need to know that they are part of the UK and thus act accordingly.
FX options volatility has leaped over the past week as a result, with the 1m up 1% overnight to 10.15 mid. Be rest assured, as soon as the vote is announced, volatility is likely to collapse (NO wins) and stay on course for a few days at least (YES wins) and see just how much further the GBP drops.
The options market is jumping over each other to buy USD CALLS with EUR/USD, USD/JPY, EUR/GBP, AUD/USD, USD/CAD vol all experiencing impressive gains in volatility levels (front end mainly) over the past 72 hours. We are entering a new phase, a new dawn and you need to have insurance to cover these “event risks” that are upon us. And I have not even mentioned interest rates once above….wait till that rears its head again!!!
FX is alive and well!!!
Have a great day ahead