Over a year has passed since QE3 started and EUR/USD is still stuck on 1.30. The remarkably tight post-QE3 1.27-1.37 range has forced down both implied and realized volatility. EUR implieds are approximately 1 vol lower across the curve relative to where they were on the Friday before QE3. Moreover, EUR volatility is sitting on post-crisis lows and well below the 10% long term average. The vol curve begins to steepen only past 3 months and investors can own vol outright or through FVAs at what we consider very attractive levels. Pricing looks especially cheap relative to rates volatility, which soared during the summer.
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Deutsche Bank