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Pullback in Spot Starting to Support Vols

EURJPY
  • EUR/JPY pullback starting to support vols* As mentioned above, EUR weakness is evident against broader G10, and EUR/JPY has extended the recent losing streak to 8 sessions and has nearly erased the entirety of the early November run higher. This leaves 157.70 the next level to watch, with both the 50- and 100-dmas now broken. ADP came in softer to favour further downside, although reaction somewhat limited 10 minutes out from release.
  • Implied vol has been supported by the move lower in spot, with 6m implieds recovering off a YTD low of 8.4 points at end-November, however still remains well below the YTD average of 10.2 points.
  • We wrote on Nov30 that the pullback in implied has allowed for cheaper positioning for a pick up in volatility across H1'24, particularly with the contracts capturing the potential exit of BoJ NIRP and a first ECB rate cut of the policy cycle.
  • Of note, BoJ's Ueda appears in front of the Diet overnight US time (Thursday local), however he's unlikely to disclose anything new on policy - although any opinions on wage developments or prices across H1'24 will be carefully watched by markets.
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