FX Market Update provides a quantitative overview of the currency market, including several valuation tools and monitors.
Looking at the signals from our short-term financial models, we see significant misalignments in the NOK-crosses, indicating that the Norwegian currency is undervalued. A EUR/NOK risk reversal is, in our view, still an attractive way to position for a NOK-strengthening due to the attractive option skew.
Implied volatilities in emerging market crosses surged during the past weeks' sell-off. In the last days sell-off pressure has eased and implied volatilities have consequently fallen back - albeit still at high levels. These falls translate to implied volatility looking cheap in EM-currencies when evaluated by the Z-score of differentials between implied and realised volatility. However, in our view, EUR/PLN implied volatility stands out somewhat and especially on a 3M horizon EUR/PLN implied volatility looks expensive. This is moreover confirmed by our range trading monitor and thus we recommend selling a 3M EUR/PLN 4.19 straddle.
We see potential for a temporary correction lower in USD/CAD and recommend utilising the flat volatility curve to enter a 1M3M ratio call calendar spread at zero costs.
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