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SocGen See EUR/USD, EUR/JPY Vol Spread Narrowing

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SocGen write on the upside risks to EUR/USD vol:
  • They see the implied term structure at the lowest level since the outbreak of the war in Ukraine. They add that despite EUR/USD's firm rejection of 1.10 last week, implied levels have not reacted yet to the realised vol spike.
  • SocGen add that they suggest the next leg of dollar weakness will be slower and won’t be in a straight line, which suggests vol upside risk.
  • Elsewhere, they see EUR/JPY vol set to normalise lower. They see any nomination of deputy Gov Amamiya as dovish and suggests the prospect of little action ahead.
  • As such, they favour long EUR/USD 6m vol swap and short EURJPY 6m vol swaps, effectively capturing the vega differential.

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