We wrote last week how ‘Bernanke’s put’ was potentially transforming into ‘Bernanke’s genie released‘ over in the FX markets.
On Tuesday, it seems, that offloading of volatility was still very much going on.
As Citi’s FX options chartpark noted:
EUR vol levels are back to pre FOMC levels with spot continuing to creep down. Gamma continues to be extremely bid and so is the RR with market makers struggling to buy back some downside strikes.
In other words tail-end protection via the options market is looking pretty pricey again.
And here’s a good chart from Citi reflecting the trend via 1-week, 1-month volatility in the EURUSD cross:
Not that everybody appreciates all that volatility being unleashed directly into the EURUSD exchange rate.
The WSJ highlighted on Monday, for example, how German officials were preparing to launch an “unusually open critique of US economic policy” at the G20 meeting in South Korea later this week.
The Fed is the biggest seller of volatility – FT Alphaville
Risk on, risk off, risk on, risk off, risk … ruptured – FT Alphaville
Trading the correlation bubble - FT Alphaville