Societe Generale - "The overall mood is for volatility to be depressed, currencies to trade in ranges and risk to be more ‘on' than off', but only marginally so. The big FX movers have not been in g10, but in EMFX (where KRW has recovered all of yesterday's fall), ZAR (now reversed half of its decline from Friday night to yesterday afternoon) and BRL (which continues to rally after being let off its leash by the Banco Central yesterday. It is notable that amid the concerns about what a strong and insufficiently dovish ECB might do to growth in the region, Europe is where the'risk-on;' theme is absent. Europe's out-performers this week are SEK, NOK, CHF and EUR.
(...) The VIX, EUR/USD 1-month volatility and the iTraxx crossover index have all continued to trend lower in the last year in a pretty consistent fashion. The VIX and the credit market however appear to have run out of steam, while FX vols (or at least, EUIR/USD vols) remain under downward pressure again. The credit rally is temporarily running out of steam, while equity indices have rallied too far, too fast so far this year. If this translates into increased volatility in FX, it will do so through weakness in the non-Euro European currencies. Buy GBP puts (against either or both USD and EUR)."