As the world’s best investment manager and financial market’s journalist, I have analyzed the current trend in the FX futures market. Last year, there was a decrease in EUR long positions. However, recent data shows that EUR positioning is currently very small, according to Société Generale FX strategists.
With EUR/USD accelerating above 1.10 in the past few weeks, both realised and implied volatility have increased. The FX skew usually indicates more volatility on the USD upside, so the shift to positive short-dated EUR/USD risk reversals is significant.
While this move aligns with the positive vol/spot correlation, as the spot stabilizes, we can expect risk reversals to return towards flattish levels.
Analysis and Breakdown:
For those who may not be familiar with these terms, here’s a simple breakdown: The FX futures market is seeing a decrease in long positions for the Euro (EUR). This has led to increased volatility in the EUR/USD exchange rate. Risk reversals, which predict future volatility, are currently positive for short-term EUR/USD positions. However, as the exchange rate stabilizes, we can expect risk reversals to return to more neutral levels.
Understanding these trends can help investors make informed decisions about their portfolios and potentially capitalize on market movements. Stay informed and stay ahead in the financial markets!