FX Volatility

Low CB activity and benign growth outlook keep FX vol suppressed. VXY likely to range between 7-9 through 2026. This favors carry strategies and short vol positions in G10.

USD/JPY implied vol underprices the magnitude of BoJ normalization. 3m 25-delta USD/JPY puts are cheap relative to the scope of rate convergence ahead. Own JPY downside via put spreads.

EM carry-to-vol ratios are at the most attractive levels since 2019. ZAR, PLN, and MXN offer the best risk-adjusted carry. Use options to harvest carry while limiting tail risk in election year.

EUR/USD vol term structure is inverted with front-end elevated relative to back-end. Sell 1m straddles and buy 6m straddles to monetize the inversion. Structural EUR strengthening should lift back-end vol.

AUD and NOK vol overpriced relative to commodity price stability. Sell AUD/USD and EUR/NOK strangles. Realized vol consistently below implied supports premium harvesting.

FX-rates vol correlation has broken down. EUR/USD implied vol is cheap relative to US rates vol. Buy EUR/USD vol funded by selling US rates vol. Convergence trade.

Hungary April elections fully priced. Brazil October elections present opportunity to build long BRL vol positions in H1 at attractive levels. US midterms not a significant FX vol event.