- USD-pairs short-term implied volatilities elevated in general with loaded week of events
- One-week/one-month differential highest for GBP/USD with 'Super Thursday' later this week
- Differential for USD/JPY lower going into BoJ, meetings haven’t been the most ‘exciting’
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In the table below, we’ve listed implied volatility (IV) levels for major USD-pairs looking out over the next one-week and one-month periods. Also noted are the differentials between the two, which can help shape expectations and/or identify currency pairs where the options market may be under or over-pricing potential price movement in the short-term. Also outlined, are derived range-low/high prices from the current spot price within one-standard deviation of the current spot price for the one-week time-frame. (In theory, there is a 68% probability that price will remain within the lower and upper-bounds.)
Short-term relative expectations low for USD/JPY ahead of BoJ, while GBP/USD implied volatility is elevated ahead of BoE; projected range-levels in alignment with technical levels for both…
Heading into the overnight BoJ meeting, USD/JPY one-week implied volatility isn’t much elevated beyond one-month IV. The differential is a modest 0.55%, which suggests near-term price swings in USD/JPY aren’t expected to be very high. It’s understandable when looking at the string of BoJ meetings where very little volatility arose as a result. In fact, if recent history is any guide here, the bigger price swings are more likely to come on Wednesday’s FOMC meeting and Friday’s U.S. jobs report. The low expectations for volatility also open the door for an outsized move if Kuroda & Co. were to pull any kind of surprises, and while not likely at this time traders should always expect the unexpected when managing risk (A topic we discuss regularly in the “Becoming a Better Trader” webinars held on Thursdays.)
USD/JPY has struggled around confluence of resistance in the form of the underside of the September 2016 trend-line, January t-line, and May/July peaks. The one-week projected high of 11491 is beyond all these lines but in the vicinity of highs carved out from January to March. A move to those levels might again find USD/JPY struggling. A move well into the 115s appears needed to really garner strength. The one-week projected low doesn’t have any particularly attractive alignment with notable support. Below it lies solid horizontal support running back to the end of last year, which if met could keep a floor in USD/JPY.
GBP/USD one-week implied volatility is at 9.65%, which is 1.35% above its one-month level and also the largest differential among major USD-pairs. This indicates short-term volatility is expected to be elevated, and with ‘Super Thursday’ coming up and key U.S. data/FOMC this makes sense. The BoE is expected to raise rates by 25 bps to 0.50%, and will also release its quarterly inflation report. Both top and bottom-side projected range levels fall at points of interest. On the downside, the projected 12983 range-low is just south of a confluence of support lines. Intersecting around 13000 is the March trend-line, April lower parallel, and monthly low. It will take a good amount of selling to push cable below this intersection, but if it does look for volatility expansion as selling could accelerate. Looking higher, the one-week projected range-high at 13335 is within pips of the 10/13 swing-high. On a rally higher, this could prove to be pivotal if GBP/USD is to try and turn the weak trend off the September high around.
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---Written by Paul Robinson, Market Analyst
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