FxVol Weekly
15 - July - 2022
All of the short-dated options are expensive on an IV/AV basis with only one month of AUD option premiums showing up as undervalued relative to the hourly actuals.
The chart above is the spread between the two-week actuals vs the six-week compared to the two-week actuals vs the one-month implied vols. The short-dated spreads between the two weeks & the one-month are wide for EURJPY and also potentially USDJPY. Short-dated calendar spreads look attractive in this environment and both EURJPY and USDJPY are potentially good candidates.
CADJPY is threatening to break out of its triangle formation to the upside. At the same time, hourly dispersion is turning up from a low level. Both are not supportive of a weaker CADJPY in the near term.
The chart above is one-week vs. two-week EURJPY implied vols. As mentioned above the short-dated spreads. We would look at either one-week vs two-week or two-week vs. one-month as potential candidates for potential spreads.
Short-dated EURJPY actuals remain bid with the two-week holding just over the six-week measure, while the spread vs the implied remains close to 1% wide.
With hourly EURJPY dispersion showing signs of rolling over it increases the odds that we will hold below the dotted trend line in the hourly chart above and after a likely pause further declines in EURJPY are a more likely outcome.
GBPCAD shows clear signs of a rising dispersion trend as you can see in the chart above. It suggests further that the decline in GBPCAD is still not over despite being at a multi-year low. The implication along with the break in CADJPY higher suggests that the USD rally vs. CAD last week is not sustainable and that we may see a bit of a correction in both CAD and AUD.
Still no sign of a top yet in CADJPY long-term momentum. As you can see we have had to admit our momentum divergent indicator has not worked in this case as each sideways consolidation was just a pause in the persistent yen weakening trade. The best our indicator could do in both instances was to foreshadow a short period of sideways consolidation.
In contrast EURJPY is now showing clear signs of long term momentum topping.
And EURJPY risk reversals remain very sensitive to spot, with the skew heavily weighted to JPY calls despite the modest spot recovery.
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Research Director
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