Societe Generale FX Strategy Research notes that as the FX market’s focus returns to monetary policy, its relationship with interest rates will become more prominent.
“The last time that FX vol was durably in a low regime coincided with a period when central bank policies were more accommodative than today,” SocGen notes.
In that regard, SocGen argues that as the market now sees reduced political fears and is refocusing on the modalities of ECB tightening, the case for more euro bullishness and more volatility is resurfacing.
“In our view, it is very likely that both the euro and its volatility will rise,” SocGen adds.
“We therefore recommend Buying a 6m EUR/USD call strike 1.15, conditioned by realised volatility being above 9% at the maturity,” SocGen advises.
EUR/USD is trading circa 1.1193 as of writing.
Source: Societe Generale Cross Asset Research
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