Italian Referendum Push Up Euro Implied Volatility

The cost of hedging against swings in the euro’s value over the coming week jumped on Monday ahead of an Italian referendum that could prompt Prime Minisrter Matteo Renzi to resign.

Options market pricing showed a jump in the cost of hedging against volatility in the euro’s exchange rate to the safe-haven yen over the next seven days, covering the referendum on Sunday.

One-week euro/yen implied volatility rose to as much as 14.32 percent, its highest in more than two months.

One-week euro/dollar implied volatility also jumped by the most in five months, hitting 12.175 percent, the highest since the night of Donald Trump’s victory in the U.S. elections earlier this month.

Renzi has promised to step down if he does not win the vote on constitutional reform, opening the way for renewed political instability in the eurozone’s third largest economy and prompting fears of bank runs and credit rating downgrades.

Reuters

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell