Euro, Yen Implied Volatility Highest Since April

Oneweek implied volatility gauging levels in the euro and the Japanese yen rose to their highest since beginning of April, reflecting traders angst ahead of the U.S. election on Tuesday.

The U.S. dollar rose on Monday as investors prepared for the presidential election, while a surge in global coronavirus cases continued to weigh on sentiment. The greenback held onto gains after posting its largest weekly percentage rise since late September in the previous trading session.

Volatility is rising because liquidity for hedges around the election is very thin, everyones the same way, theres no one selling this stuff thinking everythings great, said Jordan Rochester, forex analyst at Nomura, adding that market participants are broadly hedging for a downside in the euro and a rise in the U.S. dollar.

Democratic challenger Joe Biden leads in national opinion polls though the race is seen as close in enough battleground states that President Donald Trump could achieve the 270 votes needed to win in the statebystate Electoral College that determines the overall victor.

Its never clear whether the last minute swinging polls actually is a true reflection of the change in the race, said Rochester.

He noted that either way, the result is going to be a shock for the currency markets. If Trump wins, it will be a surprise because investors are expecting Biden to win. But if Trump loses, it will be a jolt as well for traders in the derivatives market, who will see short euro…

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