Implied FX volatility declined substantially last week on the back of improved risk appetite. As such, the combination of a constructive risk environment and falling realised vol. could continue to push down implied vols in the short term. In addition the risk of political uncertainty in Sweden has declined with the new government now in place.
EUR/SEK impl. vol from the 3M (NYSE:MMM) tenor and further out has dropped to the lowest levels seen since April last year.
After our recommendation in last week’s Monitor (14 January) to sell 3M EUR/SEK straddle, we are now on hold. From a risk/reward perspective we would look for opportunities to buy EUR/SEK straddles/take profit on short straddles if 3M impl. ATM vol drops below 6%.
