For the most part, currencies remain range bound. Normally, this would result in implied volatilities being sold off sharply, but talking to a friend in the option market it seems that there are other intra-day uncertainties in the news flow to keep implied vols relatively firm. Questions players have had to answer this week include: have rates bottomed in countries such as the US and UK; would there be an imminent unwinding of the great quantitative easing experiment; is inflation a bigger threat than deflation; would the Bric summit come out with a statement that resulted in a sell off in USD; would the SNB talk the CHF lower; and what is the true state of the balance sheets of the euro zone’s banks?
In the meantime, many bank traders have become extremely risk averse – more precisely, they have been told not to lose money.
It’s starting to look like it’s going to be a long summer.