FX options wrap - Elections risk, billions, JPY hedge, yuan
While French election risk premiums have eased and UK election risk premiums are small, there's been a pick up in demand for USD call options since last weeks U.S. Presidential debate helped Trump's ratings.
Euro related options have seen their volatility and EUR put over call premiums lowered since the first round of French election results. Benchmark 1-month expiry EUR/USD implied volatility reached 8.0 from 5.5 after the election call on June 10 and has retraced to 5.9 since. One-month risk reversals back to 0.7 after gains from 0.15 to longer term highs at 1.5.
There are still buyers of euro protection for the second round vote from the lower levels - Monday 1.0650 EUR put/USD call traded in 250 million euros at 7.85.
There's 10-billion FX option strikes between 1.0675-1.0750 expiring this week, which can help contain EUR/USD if all else fails to excite through Friday's NFP.
Buyers of USD/JPY implied volatility are benefiting from its steady gains and are protected from a sudden FX surge in either direction. The clearing of topside exotic structures should continue to drive spot and implied volatility higher. Downside versus upside strike premiums on 1-month expiry risk reversals remain far below levels seen before prior intervention in April.
Buyers of USD/CNH downside strikes are said to be hedging topside exotic option exposure and long cash positions and have helped the 1-month risk reversals trade to 0.35 CNH calls over puts, despite USD/CNH trending higher.
For more click on FXBUZ
EUR/USD FX option strike expiries - July 2 through 5 https://tmsnrt.rs/3zrLKuo
1-month expiry FXO implied volatility https://tmsnrt.rs/4eKf5Am
USD/JPY FXO implied volatility https://tmsnrt.rs/3XLAu62
(Richard Pace is a Reuters market analyst. The views expressed are his own)
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