The FX Report

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In this edition, keep up with our latest product developments, learn about the driving forces behind them, and discover the outcomes. Find out exactly what you need to know about FX this quarter.

  • 11 Jan 2021
  • By CME Group

NEW Index: Daily cross-asset implied volatility indexes

Introducing the CME Group Volatility Indexes (CVOL)

As a key indicator of forward risk expectations, implied volatility (IV) is valuable input for trading and risk management systems and strategies. But for many of the world’s most vital financial and commodity markets, robust and consistent volatility benchmarks are not readily available ‒ until now.

Derived from the world’s most actively traded options on futures contracts spanning six asset classes, the CME Group Volatility Index (CVOL) delivers the first-ever cross-asset class family of implied volatility indexes based on simple variance.

Using a proprietary simple variance methodology that assigns equal weighting to strikes across the entire implied volatility curve, the CVOL Index produces a more representative measure of the market’s expectation of 30-day forward risk.

Analyze and chart CVOL Indexes with our tool


Multi-asset class coverage

Derived from liquid options on futures markets

IOSCO compliant

User-friendly calculation

A view on Brexit volatility using the CVOL tool

The United Kingdom and the European Union successfully reached a new trade agreement on Christmas Eve, just one week before the year-end deadline to settle the terms for a post-Brexit future ‒ after more than four years of bitter political and economic disputes between the UK and its European neighbours. The deal, which British Parliament overwhelmingly approved on December 30, still needs to be ratified by the EU Parliament, which is expected to do so later this January.

CME FX futures markets (Chart 1) foreshadowed these events. During the six weeks prior to Christmas Eve, British Pound futures prices appreciated by more than 2.7 percent, or 357 pips, from 1.3192 on November 15 to 1.3549 on December 24 ‒ signalling that a positive outcome was to be expected. Likewise, Euro futures prices strengthened more than 2.9%, or 347 pips, from 1.1851 to 1.2198 between November 15 and December 24 ‒ also suggesting a positive conclusion.

While CME FX futures markets anticipated a new trade agreement between the UK and EU, the deal only came together after 11 months of intense negotiations. CME FX option markets (Chart 2) captured this uncertainty during the three-week period prior to Christmas Eve. British Pound option implied volatilities spiked more than 46% from 9.9% on November 30 to 14.5% on December 11, when implied volatilities whipsawed between 12 and 15 percent as negotiations culminated in last-minute haggling over commercial fishing rights that stretched into December 24. Euro options, by contrast, only experienced a modest uptick in implied volatilities between 6.4% and 7.1% during this same time period, reflecting the EU’s stronger and less precarious negotiating position at this stage leading up to Christmas Eve.

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