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Macro and Vol Commentary

The EURGBP pair has been on the rise in recent months due to reflation trade underpinning upside momentum as well as the increasing rate of global vaccine rollout supporting stronger recovery later on in the year. It now found resistance at 128, the level last seen in December 2018.

European data

  • The economy contracted by 0.6% q/q in Q4 2020, as the Eurozone experienced a sharp increase in infections, leading the governments to increase the restrictions
    • This decline is still lower-than-expected due to continued growth in business investment; consumer spending declined by 5.4%
  • The EU Commission has upwardly revised its forecast for economic growth for 2021 and 2022
    • The outlook now stands at 3.8% for both years after a contraction of 6.8% seen in 2020
    • This forecast is based on the assumption that at least 70% of the population will be vaccinated by the end of this summer
  • However, the EU is struggling with the vaccine rollout, raising the possibility of a slower recovery in 2021
    • As of February 20th, the European Union has a reported 5.98 doses administered per 100 people, vs 18.5 in the US and 26.8 in the UK
  • The EU commission struck a deal with Pfizer and BioNTech for another 200m doses; however, Pfizer still has not delivered 10m doses due in December, according to EU officials
  • In January, Europe saw one of the greatest declines in service activity
  • Markit Service PMI fell from 46.4 in December to 45.4 in January, as the economy continued to face elevated restrictions
  • Manufacturing sector is performing well, with the PMI falling from 55.2 to 54.8 in January
  • Trade orientated countries are benefitting from their exporting prowess while weaker ones continue to hurt from the pandemic
  • Manufacturing is likely to continue to stay in the expansionary territory due to improving economic conditions
  • Business expectations for the year ahead rose to the highest level since April 2018 amid optimism that vaccination programmes would accelerate later on in the year
  • Core eurozone bond yields rose due to growing reflation expectations in the US weighing on core asset demand
    • The 10yr German bund yield reached -0.32% on Friday – the highest level since June 2020
  • ECB projects GDP growth to rebound from a 7.3% decline in 2020 to growing 3.9% in 2021 and 4.2% in 2022
  • As regards inflation, oil price slump in 2020 along with the reversal of the VAT rate cut in Germany is likely to cause a headline in inflation in 2021
    • In particular to 1.0% from 0.2% in 2002


  • Japan’s equity markets, which underperformed in 2020, have done well so far in 2021 as global vaccine distributions have led to optimism about a pickup in economic activity
  • Japanese GDP at a better-than-expected rate of 12.7% in Q4, while still contracting by 4.8% in 2020
  • Manufacturing PMI increased to 50.6 in February due to a pickup in export orders and an increase in new orders relative to inventories
  • The services PMI continued to fall as a result of restrictions that remain in place to slow the spread of the coronavirus
    • Despite broad stabilisation in December, the decline in February meant that the sector had not registered growth since January 2020
  • Businesses expressed hope about the vaccine improving the economic situation, however, there are still concerns about whether the Olympics will take place this year
  • According to the Finance Ministry, the Japanese exports increased by 6.4% y/y in January, which was driven by a 37% increase in shipments to China
    • The value of Japan’s shipments surged by 37.5% y/y in January to outweigh weaker demand in Europe and the US
  • In terms of the vaccination rates, Japan has lagged behind other developed markets
    • It began its rollout last week in anticipation of the Olympics
  • The bank is set to hold a review in March to tweak its policies so they can be maintained for even longer, now that its inflation goal looks more distant.
  • BoJ expects the economy to follow an improving trend, growing by 4% in 2021 as COVID-19 wanes gradually
    • For the time being, face-to-face consumption will suffer the most

The Euro strength has prevailed in recent months. The rollout of vaccines in both Europe and Japan has been slow, with the latter only just beginning to administer the first doses. Meanwhile, Europe has set ambitious targets that it failed to accomplish as suppliers struggled to deliver. Rising inflation expectations and higher bond yields in Europe raised concerns over the possible tightening of monetary policy in the future. On the other hand, better-than-expected PMI figures may buoy the euro in the near term. This could convince the ECB to hold on tightening its monetary policy settings. Positive manufacturing figures out of Germany may also put a premium on the trading bloc’s currency by suggesting that the region’s largest economy is weathering its recent lockdown better than originally expected. While the yen retains its safe-haven attributes, Japan’s exporters should be well placed to benefit from the global post-pandemic economic recovery. While the Japanese economy remains fragile, a rebound in economic activity in the last quarter points to further growth in 2021.

Volatility Commentary

EURJPY Vol over the latter parts of 2020 with Covid vaccines being announced we saw EURJPY implied vols come off and realised volatility consistently coming in below implied. As might be expected we’ve also seen EURJPY spot gradually rising with haven currency JPY generally weakening over the last few months as risk sentiment gradually improves. With risk sentiment likely to continue improving over the next few months and with the ECB and BoJ continuing to keep monetary policy loose we expect these trends to continue, below we suggest a trade idea benefitting from lower volatility over the coming months.

EURJPY 3-month Realised and Implied Volatility

EURJPY Trade Idea

  • Sell 3-month ATM Straddle for circa 6.88 vol
  • Delta hedge short gamma/vega position to expiry
  • Priced in 10m EUR Notional a leg (total 20m EUR) will give approx. 40k EUR Vega
  • Note this trade is only suitable for investors capable of maintaining and hedging short gamma positions

Positioning Charts

USDBRL NDO Positioning Data 09/02/2021 - 16/02/2021

After a fairly benign positioning data for the week in February 16th, we saw a large amount of options executed this week to February 23rd. There was a significant amount put options executed below the market, the range of these options with expiries before March 5th is between 5.10-5.50 however options with expiries after March 5th have a range of 4.90-5.30. This suggests that traders have significant downside cover and believe that USDBRL will weaken in the coming months. There is little upside cover and the call options traded have a small notional value which indicates a lack of conviction for higher prices. We expect some strength in the BRL in the coming weeks but the fundamentals in Brazil suggest USDBRL will remain strong in the long run.

USDBRL NDO Positioning Data 16/02/2021 - 23/02/2021

USDCNY Vanilla Positioning Data 09/02/2021 - 16/02/2021

There were fewer options executed in the week to February 23rd for CNY than the previous week. There were slightly more call options executed this week with near dated expiries with a range of 6.40-6.70. This is more cover to the upside than we have seen in recent weeks and this could trigger a moderate correction in USDCNY. However, there remains a significant amount of downside cover in the market and options with expiries after March favour the downside with a cluster of options with large notional values focused around 6.30. The options market is fairly evenly distributed but the increase in call options suggests traders are looking for more upside cover and could indicate a moderate correction.

USDCNY Vanilla Positioning Data 16/02/2021 - 23/02/2021

EURJPY Vanilla Positioning Data 23/12/2020 - 23/01/2021

Options due to expire in the coming weeks have a moderate downside bias for EURJPY, the range is narrow with cover down to 125. Options executed trade a similar range to the previous month, however spot moved higher so there is more cover above 130. The total range for options executed is 125-132 in the month to February 23rd which is a lot wider than the previous month and also represents the recent spot move. Conviction in the market is weak with small notional values but we expect the market to consolidate in the near term.

EURJPY Vanilla Positioning Data  23/01/2021 - 23/02/2021

Charts and Tables

FX Expiries

Volatility Grid

Historical Spot FX Volatility (30D Rolling)

FX Matrix (today)


Weekly Change

Key Events & Releases

Technical Charts 

JP Morgan Global FX Volatility Index

The index has continued to consolidate in recent weeks, and the indicators have strengthened considerably. As of now, the stochastics trade in overbought and the MACD diff is positive and converging on the downside. The stochastics are about to give a sell signal and this could suggest a move to the downside in the near term. The signal has yet to be confirmed but a break below 7.50 could prompt a test of robust support at 10 DMA at 7.40, where the market found support in recent weeks. On the upside, the index finds support above 7.60, we could see prices test 7.70, confirming a double top formation. This has provided robust resistance on the upside in recent weeks, a subsequent breach of this level may prompt a test upwards towards 7.80 in the longer run.

Dollar Index

Selling pressure has been strong recently, causing the index to break below the 90 level. The MACD diff is has converged on the downside and has started to diverge and the stochastics are falling towards the oversold. The robust selling pressure looks set to continue in the near term, we could see the market retreat back towards 89.66 where we have found support in January. On the upside, in order to regain upside conviction, the market needs to break back above 90.00 and then target 90.20.

EURJPY Currency

The pair has continued to strengthen and broke above key resistance at 129 helping to confirm the ascending triangle. The stochastics are rising, with %K in the overbought territory and the MACD diff is positive and diverging. In order to confirm the outlook of higher prices, the index needs to reaffirm support at 129.50 and then take out key psychological resistance at 130. On the downside, rejection of 130 and a break back below 128.50 would indicate a rejection of the ascending triangle. To indicate a change in trend, the index needs to break below all the moving averages. We anticipate the index to find support at 129.50.



This is a marketing communication. The information in this report is provided solely for informational purposes and should not be regarded as a recommendation to buy, sell or otherwise deal in any particular investment. Please be aware that, where any views have been expressed in this report, the author of this report may have had many, varied views over the past 12 months, including contrary views.

A large number of views are being generated at all times and these may change quickly. Any valuations or underlying assumptions made are solely based upon the author’s market knowledge and experience.

Please contact the author should you require a copy of any previous reports for comparative purposes. Furthermore, the information in this report has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Data in this report has been sourced from Bloomberg unless otherwise stated. All information in this report is obtained from sources believed to be reliable and we make no representation as to its completeness or accuracy.

This report is not subject to any prohibition on dealing ahead of the dissemination of investment research. Accordingly, the information may have been acted upon by us for our own purposes and has not been procured for the exclusive benefit of customers. Sucden Financial believes that the information contained within this report is already in the public domain. Private customers should not invest in these products unless they are satisfied that the products are suitable for them and they have sought professional advice. Please read our full risk warnings and disclaimers.

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