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-EUR/USD options markets anticipate far larger price swings and market
volatility over Thursday's ECB meeting than they do at Wednesday's Fed
announcement. 1-week EUR/USD implied vols lurched higher by as much as 3 vol
points yesterday as the contract brought the ECB into view. In contrast, on
Wednesday, the contract rose a mere 0.7 vol points when capturing the Fed,
indicating traders see far more risk and volatility over the ECB event.
-As a result, the potential for disappointment on Thursday is large: EUR/USD
short-end risk reversals have been well bid on reports that the ECB could come
to a decision on APP as soon as Thursday. Consequently, the market may be
building in expectations of a hawkish ECB tilt and a bias for EUR longs. Any
lack of hawkish messaging would expose these positions and may weigh on the EUR
and short-end rates Thursday.
-While ECB speeches have hinted at action, there's no concrete expectation of an
end-date for asset purchases. Should this materialise, there's a risk that long
EUR positioning and upside EUR protection will be in greater demand.
MNI London Bureau | +44 203-865-3809 |
MNI London Bureau | +44 203-865-3809 |

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