FX options wrap - AUD/USD 0.7000, JPY clues, UK election, cheap NFP
The U.S. July 4 Independence Day holiday when combined with improved risk sentiment and the weaker dollar, has kept pressure on implied volatility on Thursday.
Additional FX volatility premium for Friday's U.S. NFP data appears to be on the low side when comparing current overnight expiry implied volatility with prior levels, especially in EUR/USD. That's despite this data garnering more importance as the USD suffers after comments from the Fed's Powell on Tuesday and weak U.S. ISM data on Wednesday.
The UK election risk to GBP volatility wasn't expected to be significant and the tame gains for overnight expiry GBP implied volatility confirmed that on Thursday.
There's been a slight increase in the USD/JPY implied volatility premium for JPY calls over puts on 1-month risk reversals, but it's still well below the late April highs of 1.8. A positive spot and implied volatility correlation is keeping a lid on risk reversals, while also highlighting the perceived risk of more USD/JPY gains. Trade flows with 165.00 strikes would suggest this level isn't being ruled out.
AUD/USD trades new 6-month highs and has attracted demand for AUD/USD call options with strikes as high as 0.7000. There's more pressure on the long standing AUD put over call implied volatility premium on risk reversals, with the 1-month expiry in to 0.5.
For more click on FXBUZ
AUD/USD 1-month expiry FXO risk reversals https://tmsnrt.rs/3LbRYRJ
Overnight expiry EUR/USD implied volatility https://tmsnrt.rs/4cEP8AA
Overnight expiry FXO implied volatility for GBP/USD and EUR/GBP https://tmsnrt.rs/45UjlJK
1-month expiry FXO implied volatility https://tmsnrt.rs/4cpYoJ2
(Richard Pace is a Reuters market analyst. The views expressed are his own)
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