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SocGen Recommend Long Vol Exposure Via EUR/USD Straddles

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  • SocGen write that bond markets should go on dominating currencies and look set to cause further turbulence. But the FX vol market has still to really digest the bond market sell-off.
  • On EUR/USD, they write that vol is more correlated to the slope of the US yield curve than to yield levels, however EUR/USD 3m vols would trade at least one vol higher if it had managed to follow the UST curve steepening.
  • They add that seasonal effects will be more prominent in the last quarter of the year. Over the past two decades, November has been the second best month (after August) to be long EUR/USD volatility.
  • They recommend positioning for higher vol via Long EUR/USD vega via options. They recommend buying EUR/USD 3m straddles, while delta hedging dynamically. They recommend unwinding the strategy if implied vol reaches 9, with a stop at vol falling below 7.

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