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The acutely low levels of FX vol at.........>

OPTIONS
OPTIONS: The acutely low levels of FX vol at present has been very widely
observed, but RBC this morning note that there is an anomaly emerging wherein
vol in many major pairs is trading at a discount to other pairs that it almost
always trades at a premium to.
- RBC point out that EUR/USD vol trades below NOK/SEK vol and USD/JPY vol below
AUD/NZD vol, a pattern that has occurred very rarely historically.
RBC write: "That NOK/SEK vol and AUD/NZD is normally "cheap" should not be a
surprise. In both cases, the cross relates to closely-linked economies (via
geography, size, cyclicality, liquidity, external trade exposure, etc).
- "But, it is hard to rationalise EUR/USD and USD/JPY vol being at a discount to
vol in these usually-stable pairs, but it may be a reflection of the majors
bearing the brunt of speculative vol selling recently.
- "A relative value play that we think makes more sense is to be long vol in the
majors against short vol in the historically stable pairs shown in the charts."

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