FX options wrap - BoJ fuel, USD threat, big EUR, CNH risk
USD/JPY traders pared USD/JPY risk premium as BoJ Governor Ueda failed to commit to a December rate hike. Benchmark 1-month implied volatility had rallied 1.0 to 11.2 since early Europe on Friday and has since reverted to 10.5.
There is a strong negative correlation between USD/JPY spot and implied volatility which should lift the latter if USD/JPY drops again or if traders feel USD/JPY's downside is becoming more vulnerable. The extent of implied volatility gains for 1-month expiry options from Tuesday will signal how much additional realised volatility dealers attribute to Decembers U.S. and Japanese policy decisions, which will be included.
Demand for the broader USD and USD call options, "the Trump trade" which has dominated since the U.S. election, is still apparent amid the threat of more USD gains. However, consolidation might be on the cards in a week lacking any significant data, especially in EUR/USD where there are huge strike expiries and orders between 1.0500-1.0650.
One-month USD/CNH implied volatility has dropped to new lows since September as another low fix for now prompts traders to shift FX volatility and topside risk premiums towards longer dated maturities.
For more click on FXBUZ
1-month expiry FXO implied volatility https://tmsnrt.rs/3YSnHxQ
EUR/USD FX option strike expiries November 18-22 https://tmsnrt.rs/3AIdFav
Richard Pace is a Reuters market analyst. The views expressed are his own, editing by Ed Osmond
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