• Yesterday the galloping crisis in Greece moved into a new phase as attempts to form a unity government broke down. Near-term development remains highly uncertain and investors seek to “safe haven”. EUR/USD has effectively broken out of the tight range seen in the first four months of this year and this morning EUR/USD traded below 1.27 for the first time since January. In our FX Update that we published yesterday we lowered our 1M and 3M FX forecast and we now see EUR/USD at 1.25 in one months time (down from 1.29) and EUR/USD at 1,28 in 3 month (down from 1.28). However, it has to be underlined that the crisis dynamic is highly uncertain and a significantly bigger move lower in both crosses cannot be ruled out. Hence, we repeat our message that clients exposed to a weaker euro should consider hedging the risk of a significant move lower in these two crosses.

  • Front end EUR/USD volatility still looks relatively low compared to levels reached in September 2012 (see page 2) and a simple way to hedge against a lower EUR/USD is to buy put options. 1M EUR/USD 1.27 put cost USD160 pips (spot ref.: 1.2724, indicative prices).

  • Alternative you can consider to enter a 2M-6M EUR/USD 1.27 put calendar spread which utilize the steepness in the volatility curve. The strategy pays an initial premium of USD 190 pips (spot ref.: 1.2724, indicative prices). The strategy protects against near term EUR/USD below 1.27 while benefits from a correction EUR/USD higher and lower volatility if/when things calm down and fundamentals starts to matter again, as we expect.

  • The past couple of days have also once again underlined that SEK and NOK - despite strong fundamentals - are not the place to hide when risk aversion spikes. Especially the global growth sensitive SEK has suffered lately with EUR/SEK up 25 big figures in just five days. The pressure on NOK has been less pronounced and NOK/SEK has briefly traded above 1.20, the highest level since March this year.