1. FX Outlook
  2. FX Options Weekly

Macro and Vol Commentary

Silver has traded range bound in recent months, following gold prices, on the back of fluctuating US Treasury yields as the markets tried to predict the path of the Fed’s monetary policy. Given a pause in monetary tightening at the central bank’s meeting last Wednesday, what’s the outlook for silver in coming months? 

Macroeconomic Drivers 

  • Silver, like gold, depends on macroeconomic factors, notably those coming from the US.
    • The correlation between silver and the 10yr Treasury yield has started to increase in recent weeks and reached -0.75.
    • The elevated Treasury yields make investing in non-interest-bearing precious metals less attractive. 
  • The 10yr US Treasury yield surged by nearly 10bps since June, almost touching 4.5%, the highest level since October 2007 as investors grew increasingly convinced that interest rates would stay elevated for longer. 
    • We believe that monetary tightening by the Fed is already priced in, and while the 10yr US Treasury yield could continue on the upside in the near-term, the increase will likely soften. 
    • We expect the yield to hover around the 4.5% level until expectations of interest rate cuts start being priced in at the end of the year. 
  • Like gold, silver seems to have been pushed back by the strengthening dollar, breaching the 105 level - not seen since March. 
    • The correlation between silver and the dollar increased recently and stands at -0.77. 
    • The greenback is poised to appreciate further into the year-end as the ‘’last man standing’’ among major economies. 
    • We expect the dollar to edge higher in the near-term, testing 106 resistance level. 
  • Investors are not anticipating a pronounced economic decline in the US in the coming months, and with that, silver and gold will not have a chance to shine as a hedge against recession. 
  • This, combined with the prospects of a stronger dollar and elevated US Treasury yields will undermine silver prices as investors continue to flock to the greenback. 

Central Bank Outlook 

  • Increasing oil prices fuel fears inflationary pressures might resurface, underscoring the narrative of higher-for-longer interest rates. 
    • Brent crude oil prices breached $94.95 a barrel in the third week of September, a level not seen since November 2022. 
    • Elevated petrol prices contributed to an increase in US CPI reading in August which rose to 3.7% YoY compared to 3.2% the month before. 
  • At their latest meeting, the policymakers kept the federal funds rate unchanged at 5.25%-5.50%. Still, the quarterly projections released by the central bank showed that another interest rate hike might materialise by the end of the year. 
    • As of now, the forward swaps are pricing in 50% chance of a rate hike by the end of the year. 

While the US economy has so far proved very resilient given the tight monetary policy environment, we believe the high interest rates are yet to fully filter through, bringing softer economic figures. We believe the Fed will not raise interest rates further but maintain a hawkish stance not to let the markets price in interest rates cuts too early. We expect the core inflation to remain sticky in the near term, and with this in mind, terminal rates from key central banks are likely to stay higher for longer, adding to a slower GDP growth of major economies. Precious metal prices are caught between the bearish environment of elevated interest rates and high US Treasury yields on the one hand, and growing expectations of global economic slowdown on the other. As silver remains stuck between these two opposing forces, we expect the metal to trade rangebound between $22.60/oz and $24.50/oz until the end of the year. In our view the risks are going be skewed to the downside until interest rate cuts start to be prices in at the start of 2024, which should bring a more positive environment for silver. 

Sources: S&P Global, Bloomberg

Volatility Comment

Silver has been very noisy lately, moving at the whim of the USD. Recent USD strength has pushed silver lower to the bottom of its recent range. Tight monetary policy environment reduces silvers allure; this, coupled with slowing Chinese economy and growing expectations of global economic slowdown, is dampening demand. There is strong support around 22 USD and an area where we could see some safe haven buying and market bulls dip in. Hence, we expect silver to be range bound between $22.00/oz and $25.00/oz. 1M implied Volatility level are at there lowest since early 2020 and believe it’s a good opportunity to go long VOL. 

XAGUSD 1-month Realised vs Implied Volatility

Realised Vs Implied (15)

XAGUSD Trade Idea

Option Strategy 1

  • Buy American KI XAG Call STRIKE $23 Barrier $22.5
  • 1M Expiry
  • Notional 100k XAGUSD
  • Premium Pay 21K USD

Option Strategy 2

  • Buy American KI XAG PUT STRIKE $24 Barrier $24.5
  • 1M Expiry
  • Notional 100k XAGUSD
  • Premium Pay 10.2 K USD

Our preference would be to have both Strategies at a combined premium of 31.2K USD

Positioning Charts

EURUSD Vanilla Positioning Data 12/09/2023 - 19/09/2023

EURUSD option positioning saw the downside cover extended in the week ending September 26th, following the recent pair weakness. At the same time, the number and the size of the notional for puts grew, indicating continued appetite on the downside. Appetite is mostly concentrated in the front end of the curve, up until the end of October, with the number of positions reduced into the year-end. We expect to see marginal softness in currency pair performance in the near term.

Eurusd 12 19

EURUSD Vanilla Positioning Data 19/09/2023 - 26/09/2023

Eurusd 19 26

USDCNY Vanilla Positioning Data 12/09/2023 - 19/09/2023

USDCNY option positioning saw appetite for the currency pair diminish in the week ending September 26th. Both puts and calls diminished in number and size of the notional, especially over the longer term, suggesting markets are focussed on the near-term environment. The size of the put notional grew; however, the number is now below those of calls, suggesting diminished appetite on the downside. This is further highlighted by the extended upside cover.

Usd Cny 12 19 (2)

USDCNY Vanilla Positioning Data 19/09/2023 - 26/09/2023

Usd Cny 19 26 (5)

XAGUSD Vanilla Positioning Data 26/07/2023 - 26/08/2023

Appetite for the XAGUSD option further diminished in the month ending September 26th, with most of the expiries taking place further down the curve. The number of puts offsets the calls, suggesting downside momentum in the near term; however, the strike range remains tight, meaning that the appetite for the downside is marginal. There is little conviction in the market for XAGUSD at the moment.

Xag Usd Jul Aug

XAGUSD Vanilla Positioning Data 26/08/2023 - 26/09/2023

Xag Usd Aug Sep

Charts and Tables

FX Expiries

Expiry (60)

Historical Spot FX Volatility (30D Rolling)

Chart (49)

FX Matrix (today)

Spot (107)

Weekly Change

Week (89)

Key Events & Releases

Calendar (122)



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