global trade

Citizens Daily FiX Email

Technical Documentation

Thank you for your interest in the technical details offered by the Citizens Daily Foreign FiX. As there is a great deal of information presented in the analytics section, we created this brief document to help interpret the data in each section. Having a working familiarity with these tables will allow you to more rapidly assess currency and rate fluctuations and its market implications.

Percentage Change

To start, we look at the percentage change in the currency over several time periods; including 1 month, 3 month, 6 month, 9 month, 1 year and 2 years. Each percent change represents the relative movement in each currency to the US dollar. However, this is not necessarily the same as how the currency is quoted. For example, a negative percentage for EURUSD indicates that the Euro is weaker against the US Dollar. Meanwhile, a similar quote in USDBRL with a negative percentage means that the Brazilian Real is stronger against the US Dollar. In terms of quoting convention, this would imply that EURUSD is higher reflecting Euro strength, but in the case of USDNOK, the quote would be lower as the Krone has gained while the Dollar has declined.

Annualized Forward Differential

Forward points are quoted for each tenor as a measure of the interest rate differential that exists between the two currencies in addition to the adjustment made to reflect supply and demand conditions. However, these forward points are expressed in counter-currency terms and not as an annualized figure. It can be somewhat deceptive to see rising forward points as the tenor increases, but this is not always the same thing as a rising differential from spot. In the current market where global central banks maintain a tight control over the front end of the yield curve, many forward point curves exhibit significant inflections and when these points are annualized the differential in forward premium or discount becomes quite visible.

We provide these indicative mid-market levels as a way for clients to evaluate the forward premium or discount on a common basis of comparison. Please note however, that depending on the direction of your exposure, these annualized percent differentials are either a cost or a benefit to your particular transaction. For example; long Euro holders needing to sell Euro, earn a forward premium while short Euro buyers need to pay.

Implied Volatility

In the last table, we present the implied volatility “term structure”, meaning implied volatility levels for a given currency over several time periods; including, 3 month, 6 month, 9 month, 1 year and 18 months. Implied volatility is used in option pricing and is the traded expectation for how volatile markets will be over a given tenor in the future. For instance, 1 year implied volatility in EUR (at current spot levels) for today would show how volatile the EURUSD exchange rate would be over the next full year. Implied volatility levels and prices are closely followed by market professionals as indicators of how relatively cheap or expensive the price of an option can be when hedging a given currency exposure, and in doing so could show potential stresses in both the options and spot marketplaces.

In addition to providing the implied volatility term structure, in the last column of the table we show the 6 month risk reversal. A risk reversal in the options market refers to the demand or preference for call and put options. A positive risk reversal means the volatility of calls is greater than the volatility of similar puts, which implies that more market participants are betting on a rise in the currency pair than on a decline, with the opposite being true if the risk reversal is negative. Thus in similar fashion to implied volatility, a risk reversal can be used to measure potential richness/cheapness.

Questions or Comments

Send us an email.