Currency Volatility: GBPUSD, EURUSD, AUDUSD, USDTRY Outlook

By Justin McQueen

Across the major G10 FX pairs, 1-day implied volatility has edged higher, particularly in the commodity linked currencies (AUD, NZD). However, as has been the case in recent times, FX volatility remains subdued. 1-weeks implied vols are marginally lower, given the upcoming market holidays while key central bank and data points are somewhat lacking this week. Nevertheless, volatility has arisen in the emerging market complex stemming from Turkey amid the deteriorating economic fundamentals. 

GBPUSD: Unsurprisingly, the UK and EU had agreed to a Brexit extension at the emergency EU summit (October 31st deadline). Given that this had largely been priced in and with the COT report highlighting that GBP net positions were neutral, little in the way of upside had been observed following the extension announcement. However, what had gained much of the attention had been the tumble in GBP implied volatility across the board as the concerns over Brexit eased, while GBP risk reversals edged higher as demand for puts were pared. Eyes will be on UK data throughout the holiday shortened week, but due to the fact that a Brexit deal has yet to be reached, the Bank of England will remain tight-lipped until a deal has been finalised.

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