FX options wrap - Huge EUR, USD calls, RBNZ risk, month-end
Risk aversion boosted implied volatility in Asia on Tuesday after U.S. President-elect Donald Trump vowed new Canada, Mexico and China tariffs.
USD call premiums lifted versus those three currencies, with benchmark 1-month USD/CAD risk reversals reaching new 2-year highs at 0.95 for the topside. One-month expiry USD/CAD implied volatility traded at its highest level in a year at 6.6 from 5.5 prior.
USD/CNH 1-month implied volatility was quick to retrace its initial 4.6-5.0 jump as the spot rally stalled above prior highs, but risk reversals retain an ever increasing premium for USD/CNH topside over downside strikes, to highlight the simmering risk of more yuan weakness.
EUR/USD implied volatility retraced its early gains as spot was drawn back to a huge 10 billion euros of impending 1.0500 strike expiries. Downside versus upside strike premiums on risk reversals are below Friday's new multi month highs - 1-month 25 delta is 0.65 from a 1.1 while EUR/USD remains well above large 1.0300 option barriers.
Overnight NZD-related implied volatility gains recognise the increased realised volatility risk from Wednesday's RBNZ policy announcement, with an aggressive 75bps cut being a possibility.
Month-end FX rebalancing flows might initiate some USD supply, according to bank models.
For more click on FXBUZ
1-3-12-month expiry USD/CNH option risk reversals https://tmsnrt.rs/3OonSfk
EUR/USD FX option strike expiries Nov 26-29 https://tmsnrt.rs/4g3RU3T
USD/CAD 1-month expiry 25 delta risk reversals https://tmsnrt.rs/4g204K4
(Richard Pace is a Reuters market analyst. The views expressed are his own)
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