highlights

Time to buy vol

It’s that time of year, and there is no shortage of catalysts

July 24, 2025

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Long 1-month 1.8050 EURAUD call
Cost ~36bps expires 26AUG

Long 1-month 0.8760 EURGBP call
Cost ~33bps expires 26AUG

EUR vol

I think it’s a good time to buy 1-month vol. Realized volatility in FX has been unbearably low of late as beta to trade headlines has collapsed and risky assets grind to new all-time highs across the board. But with the vol base so low and a massive flurry of data coming just as we enter a seasonally suspect stretch for risky assets, I think it’s a good time to get involved. Now that ECB is out of the way, I like buying:

1-month EURAUD 1.8050 call for ~36bps
1-month EURGBP 0.8760 call for ~33bps

These are roughly 30 delta options. Here is my logic:

Seasonality of vol. We tend to shift from low vol to higher volatility around the turn of July into August. Here’s the average performance of CVIX (FX vol index) over the last 25 years.

EUR is trading more and more as a safe haven as it becomes a legitimate number two vs. the USD when it comes to reserve currency and stable policy. Europe is spending off a strong fiscal base, the world wants to be less underweight EUR, and the ECB is done cutting.
Seasonality of EUR crosses. Here’s how EURAUD and EURGBP have performed, on average, since 2000…

Vol is low and catalysts abound. Check out am/FX: Superstorm in 8 days for a list of potential catalysts. And here’s 1-month EURAUD and EURGBP vol:

Buying vol because it’s cheap is a losing strategy in isolation because volatility clusters. Low volatility persists until something breaks it out of its slumber. There are plenty of seasonal and macro possibilities coming.

The charts look good. EURAUD has pulled back right to the 50-day moving averages while massively outperforming what one might have expected given the collapse in VIX.

You’re buying a currency of a central bank that is done cutting and selling two countries where the central bank is still lowering rates. With the UK you get a stagflation and deficits kicker, too.

The direction and the vol are correlated here. If volatility picks up, it’s usually because we are transitioning away from extreme greed towards something more moderate (or towards fear). That is, spot/vol correlation is positive, especially in EURAUD. So, buying the vol has some decent convexity if spot blows higher early in August.

If you prefer to do trades via spot, long EURAUD at 1.7765 with a stop at 1.7540 should give you enough room. The EURAUD trade obviously pushes against the recent bubbliness in hard commodities but as I have written about quite a few times: Terms of Trade does not seem to drive AUD much anymore.