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Increasing FX-volatility ahead

FX volatility is approaching the lows of 2007 and 2014. Is there any chance things may turn around soon, or are we bound to pay another visit close to all-time lows. To simplify things, we use 3-month EURUSD volatility to represent FX volatility. Deutsche Bank's volatility index shows the EURUSD makes up around 38 percent of the weight, so consequently, they have been moving in tandem (Figure 1). Just over a month ago, we concluded that the reduced dollar supply resulting from the Federal Reserve's QT-plans will work to strengthen the dollar against the euro. Now, we also argue that the increasing rate difference in the basis swap will serve to increase volatility.

Read the analysis here

Lars Henriksson

Strategist

Foreign Exchange

lahe06@handelsbanken.se

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Keywords: USA, Business Surveys, EMU, Politics

The chart of the day

Calendar

Fri, Oct 13
      Graph Period Cons. fc Our fc Previous Actual
08:00 Finland GDP Monthly Indicator August 3.6 2.7
08:00 Finland Finland, Harmonized CPI, Total, Index September
08:00 Finland CPI September 0.7 0.8
08:00 Finland HICP September 0.2 / 0.7 0.2 / 0.7
08:00 Germany HICP preliminary September 0.0/1.8 0.2 / 1.8 0 / 1.8
08:25 Germany CPI September 0.1/1.8 0.1 / 1.8 0.3 / 1.9
09:00 Sweden HOX, Flat prices September 0.2 / 8.1 -1.9 / 4.5
09:00 Sweden HOX,House and flat prices total September 1.8 / 9.2 -1.5 / 6.7
09:00 Sweden HOX, House prices September 2.8 / 9.9 -1.3 / 8.1
14:30 US CPI, less food and energy September 0.2/1.8 0.2 / 1.7 0.1 / 1.7
14:30 US CPI September 0.6/2.3 0.4 / 1.9 0.5 / 2.2
14:30 US Retail Sales Advance September 1.7 -0.1 1.6
16:00 US U. of Mich. Sentiment 95 95.1 101.1
16:45 Sweden Riksbanks´ Skingsley speaks
Sun, Oct 15
      Graph Period Cons. fc Our fc Previous Actual
15:00 World Central bank panel in Washington with Yellen, Zhou, Kuroda and Constancio (ECB)
Mon, Oct 16
      Graph Period Cons. fc Our fc Previous Actual
03:30 China CPI y-o-y September /101.6 / 101.8 / 101.6
09:00 Sweden Riksbanks´ Ohlsson speaks
14:30 US Empire Manufacturing October 24.4 24.4 30.2
Tue, Oct 17
      Graph Period Cons. fc Our fc Previous Actual
10:30 UK CPI September 0.3/3.0 0.6 / 2.9 0.3 / 3
10:30 UK CPI Core September /2.7 / 2.7 / 2.6
11:00 Eurozone HICP ex energy and food /1.1
11:00 Germany ZEW Eurozone Economic Sentiment October 31.7 26.7
11:00 Germany ZEW Economic Expectations October 20.0 17 17.6
11:00 Germany ZEW Current Situation October 88.5 87.9 87
15:15 US Industrial Production, sa September 0.3 -0.7 0.3
16:00 US NAHB-Wells Fargo Housing Market October 63 64 68
Wed, Oct 18
      Graph Period Cons. fc Our fc Previous Actual
10:10 Eurozone ECB´s Draghi speaks
10:30 UK ILO Unemployment Rate, sa July 4.3 4.3 4.3
14:30 US Housing Starts September 1180K 1.2M 1.1M
14:30 US Building Permits September 1230K 1.3M 1.2M
20:00 US Fed releases Beige book
Thu, Oct 19
      Graph Period Cons. fc Our fc Previous Actual
04:00 China Real Estate Transactions September 4.3 / 4.3 43.3 / -1.5
04:00 China Fixed Asset Investments September /7.7 / 7.6 / 7.4
04:00 China Industrial Production September /6.4 6 6.6
04:00 China GDP q-o-q Q3 1.7 1.8 1.7
04:00 China Retail Sales y-o-y September 10.2 10.1 10.3
09:30 Sweden Unemployment Rate, sa September 6.6 6.7 6.6 6.8
09:30 Sweden Unemployment Rate September 6.0 6 6.2
10:30 UK Retail Sales incl. Auto Fuel September -0.2/2.2 0.8 / 2.3 -0.7 / 1.2
14:30 US Initial Jobless Claims W41 244K 222K
14:30 US Philly Fed October 23.8 27.9
Fri, Oct 20
      Graph Period Cons. fc Our fc Previous Actual
08:00 Norway Business Tendency Survey Q3 3.8
09:00 Denmark Retail Sales September -0.6
16:00 US Existing Home Sales September 5.3M 5.4M
Fri, Oct 13|
Sun, Oct 15|
Mon, Oct 16|
Tue, Oct 17|
Wed, Oct 18|
Thu, Oct 19|
Fri, Oct 20
View the complete calendar

Latest publications in

FX Pilot — Will FX volatility remain low? We don’t think so

FX volatility is approaching the lows of 2007 and 2014. Is there any chance things may turn around soon, or are we bound to pay another visit close to all-time lows. To simplify things, we use 3-month EURUSD volatility to represent FX volatility. Deutsche Bank's volatility index shows the EURUSD makes up around 38 percent of the weight, so consequently, they have been moving in tandem (Figure 1). Just over a month ago, we concluded that the reduced dollar supply resulting from the Federal Reserve's QT-plans will work to strengthen the dollar against the euro. Now, we also argue that the increasing rate difference in the basis swap will serve to increase volatility.

Lars Henriksson, Strategist | lahe06@handelsbanken.se

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The global economy is moving from recovery to economic boom. Despite risks of a setback, the risk scenario is now considered to be lower than at the beginning of the year. This provides fuel for rising inflation and thereby a normalisation of global monetary policy. In turn, it creates an environment for long yields to increase.

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  3. Indicative pricing 38bp over swap, matched maturity

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Lars Henriksson, Strategist | lahe06@handelsbanken.se