Is EURUSD Volatility About To Explode?

Tyler Durden's picture


With the end of Operation Twist's USD volatility repression, fading LTRO benefits, and various event risks (from elections to sovereign refinancings and bank downgrades/collateral calls) occurring, the gap between EURUSD implied volatility and European equity implied volatility is becoming excessive. FX volatility is extremely low (complacency high) but relative to equities it seems to offer a low-cost-long-vol bet on the chance of a risk-flare occurring. The last two times this has occurred (in the last year), EURUSD implied vol has rapidly caught up to equity's risk - why not third time the charm?

Charts: Bloomberg

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Fri, 05/04/2012 - 11:45 | 2397098 Tinsu
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When EUR volume catches up, what happens? Market down? Dollar up? Bonds up?

Fri, 05/04/2012 - 11:50 | 2397108 idea_hamster
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"[W]hy not third time the charm?"

Third time is enemy action.

Fri, 05/04/2012 - 12:02 | 2397170 Ahmeexnal
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When EUR volume catches up, what happens? Market down? Dollar up? Bonds up?


Tits up.

Fri, 05/04/2012 - 12:12 | 2397199 Spooky Polish
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Somebody called tits ? 

Fri, 05/04/2012 - 13:24 | 2397446 strongband
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EURUSD = T1000.

Fri, 05/04/2012 - 12:48 | 2397328 BlandJoe24
BlandJoe24's picture

"vol" in the above article/chart is "volatility" not "volume". 

Your confusion is understanable, since "vol" most commonly signifies "volume".  I suggest we use "vlty" or something like that when we mean "volatility" from now on, to avoid confusion.

Sat, 05/05/2012 - 01:21 | 2398960 molecool
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Fri, 05/04/2012 - 11:48 | 2397104 VonManstein
VonManstein's picture

something going on somewhere. dollars been defended ever since (un)employment release. realy volatile and now up on day by .20

this began prior greece rumour.. DXY been pushing lower resistence and today may have commited people to the idea we were going lower.. thats changed now and we see where we go from here.

i mean people do for some reason still prefer USD for safety so obviously it still haas some life in it

Fri, 05/04/2012 - 12:31 | 2397261 blindfaith
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The DOJ hard at work.  Go to lunch, is the instruction given to the rating agencies.  Got Beer?

Fri, 05/04/2012 - 11:50 | 2397117 WAMO556
WAMO556's picture

The political answer to a economic question - is their going to be volatility? Will the governments (US, EU, JAPAN, CHINA, ETC...) tolerate losing money? Nope. I would think not. Some goon squad guy will show up and say "you put your name on the paper or I put your brains on the paper". It took a long time for Rome to die AND they had BARBARIANS to deal with, now, not so much. But then again, I may be wrong and the shit hits the fan on Tuesday since Monday is a BANK HOLIDAY!! Just saying BITCHEZ!!!

Fri, 05/04/2012 - 12:27 | 2397244 Manthong
Manthong's picture

Don't we have margin increases to factor into the fun?

Fri, 05/04/2012 - 11:56 | 2397129 JustObserving
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Only if the Fed allows it.  Everything in the markets feels like manipulation and control.

Fri, 05/04/2012 - 11:53 | 2397131 carbonmutant
carbonmutant's picture

Euro about to break 1.30 headed south...

Fri, 05/04/2012 - 12:01 | 2397161 Roy Bush
Roy Bush's picture

Not going to least not for for a while.  China buys the Euro as soon as it hits anywhere near 1.30.

Fri, 05/04/2012 - 12:06 | 2397180 ACP
ACP's picture

Put/call too high. Just about ripe for a hard-core ramp job in conjunction with the spooz.

Fri, 05/04/2012 - 12:24 | 2397225 Negro Primero
Negro Primero's picture

Add This:

EU Political Event Risk Calendar


Date            Risk Event

5/6/2012      Presidential elections in France
5/6/2012      General election in Greece
5/6/2012      Schleswig-Holstein election in Germany
5/13/2012    North-Rhine Westphalia election in Germany
5/14/2012    Eurogroup/Ecofin meetings
5/31/2012    Irish referendum on fiscal compact
6/6/2012      ECB meeting & press conference
6/7/2012      Heads of State Summit**
6/10/2012    Parliamentary elections in France (1st round)
6/15/2012    Troika quarterly review **
6/15/2012    Greek Parliament to vote on fiscal austerity plan **
6/17/2012    Parliamentary elections in France (2nd round)
6/21/2012    Eurogroup/Ecofin meetings
7/1/2012      ESM starts to operate alongside EFSF
9/12/2012    Dutch Parliamentary elections
   2013          Federal election in Germany

Source: Morgan Stanley Research **denotes uncertain

Fri, 05/04/2012 - 12:35 | 2397277 Doubleguns
Doubleguns's picture

Thats a lot of horse shoes to toss. One of them might be a ringer. Maybe more than one, a lot more than one.

To bad it will all be manipulated into a foggy bottom myth.

Fri, 05/04/2012 - 15:49 | 2397943 GMadScientist
GMadScientist's picture

And these are just the "white swans".


Fri, 05/04/2012 - 12:25 | 2397236 zonkie
zonkie's picture

Not so fast Tyler. There is a robot called QE rumour machine - it triggers whenever SP falls more than 20 points, bringing USD to where it started. 

Fri, 05/04/2012 - 12:50 | 2397338 cnhedge
cnhedge's picture

A gradual deterioration in the collateral backing multi-cedulas

Fri, 05/04/2012 - 15:53 | 2397965 GMadScientist
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"Which does make you wonder, if some other bond prices are now reflecting a “squeeze” premium rather than pure value."

Comedy gold. LOL

Fri, 05/04/2012 - 14:22 | 2397637 orangegeek
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With low volatility in the EUR, a down draft looks iminent.


This pair well with the bullish count of the USD Index.

Fri, 05/04/2012 - 15:35 | 2397878 zerotohero
zerotohero's picture

Zzzzzzzzzzzzzzzz - wake me up when something actually happens.

Sun, 05/06/2012 - 21:32 | 2402258 dserfc
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