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The greenback has seen an abundant broad-based selling, by both funds and asset managers. However, DXY has since rebounded sharply, as USD liquidity becomes an issue. We expect USD positioning to remain volatile after the Fed's announcement overnight with the Trump administration’s further action to tackle the COVID-19 outbreak also a key driver.
The pandemic virus-related risk-off in FX seems to be morphing into a broad bullish USD move.
Historically, such breadth has been ill-suited to monetization via long USD correlation option structures.
More efficient to stick to standalone USD calls; TWD, PHP and NZD screen as decent value.
Rich USDJPY risk-reversals finally jumped this week alongside the spike in spot.
Global macro demand for USD calls to chase spot momentum can continue to pressure skews tighter, and a period of spot-up/vol-up correlation may be on the cards.
At 3-week mark since the onset of the recent EUR sell-off we expect the trend in EUR x-vol space to start to peak and pause in the coming weeks.
This should open up opportunities in fading the front of the vol curves and the under-realized EUR OTM puts. Courtesy: ANZ & JPM
