The EUR/USD essentially matched its 52 week low from early September 2013 this morning:
The gradual creep lower since the 1.3993 high in May has been notable because of how low volatility has remained even as the currency cross has sold off 9 big figures. In fact, the 3 month implied volatility in the EUR/USD recently touched an all-time low below 5, surpassing the prior low from mid-2007:
This is an incredible chart, and particularly surprising since the Euro was in a steady uptrend in mid-2007 when it last registered such low implied volatility readings, compared to the current 4 month downtrend for the currency vs. the USD.
Options trading in the currency market has picked up in the past couple of weeks as the USD has broken higher vs. a number of major crosses, including the two biggies, the Euro and the Yen. Of course, volatility can both ways, and many traders are watching the extreme short Euro positioning heading into this week’s ECB meeting with a possible long position in mind. Here’s the Commitment of Traders report showing that non-commercials are skewed very short relative to the past 7 years, courtesy of Short Side of Long:
Positioning this extreme has usually meant that a bottom in EUR/USD was near, but timing that bottom is much more difficult. There is the additional wild card of the policy uncertainty as Mr. Draghi walks a fine line.
In any case, the recent increase in EUR/USD implied volatility could be a sign that broader market volatility in all asset classes might increase this fall after a relatively quiet summer and a steady downtrend in volatility for the past 2 years.