Traders have become increasingly focused on the role that the dollar is playing in exacerbating rallies in equities, gold, and other assets, with concern in some quarters about a more precipitous dollar decline to come. At least on the implied volatility front, there’s no sign of such worries yet. EVZ, the index that tracks VIX-style implied volatility for FXE (a EUR/USD ETF) is pushing to new all-time lows. Note that sudden price spikes in recent history correlated with moves higher in implied volatility; however, the relentless trend of summer and fall 2009 has not seen any corresponding increase in implied volatility. I regard this as confidence among traders that there is little concern of a dramatic rise in EUR/USD, even if the current trend does continue.
When gold closed above $1000 some weeks ago, that move was accompanied by a significant rise in implied volatility. However, the break above $1050 in recent sessions has not seen a similar confirmation – not of the same magnitude, anyway – in implied volatility, which may be a contrarian signal that traders are not concerned about a runaway gold rally. Gold certainly looks overbought on a price basis.