How to prepare for reduced volatility
Background
Since bottoming out at multi-year lows of about 4.89% back in June, three-month at-the-money-forward implied volatility in EUR/USD has risen considerably and is now standing at a robust 9%. Meanwhile, although actual three-month volatility in the spot price has also risen since the summer, it remains at 7.3%. This implicit view as to how much more volatile the spot price is expected to become, at 1.7% points, is fairly unusual. It is roughly double the average, anticipated pick-up in
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