Implied FX volatility continued lower last week pushed down by declining realised volatility.
The risk environment remains fragile and sensitive to the US-China trade negotiations. Moreover, short-term realised volatility (High-Low gamma value) shows signs of stabilisation, especially for EUR/SEK and USD/SEK, indicating that the downward pressure on implied vol stemming from declining realised vol might ease near term.
Hence, from a risk reward perspective, we recommend buying 3M (NYSE:MMM) EUR/SEK straddle.
For clients looking to buy longer dated FX vol, we see value in buying 1Y USD/SEK calls or straddles, which historically has a high beta (sensitivity) to global equity markets (risk appetite).
