FX options wrap - JPY and CNH surge, central banks on radar
The big movers in FX and options on Thursday are JPY and CNH, with risk aversion and the unwinding of large short positions the main drivers.
USD/JPY extended its recent decline to test below 152.00, which saw 1-month implied volatility trade new highs since early May at 10.75 and remain firm amid the rebound to 154.00 after US GDP data. 1-month risk reversals traded long term highs at 1.9 JPY calls over puts and dealers noted good demand for sub 1-month 150.00 strikes.
USD/CNH fell hard in late Asia/early London, despite more rate cuts and implied volatility surged. One-month expiry risk reversals reached new record highs for CNH calls over puts at 0.8 and 1-month implied volatility through 3.7 from 3.0 (4.0 and 0.9 respectively, since). AUD/USD implied volatility and downside strikes have increased as FX threatens more key supports.
EUR/USD remains sidelined and unlikely to move too far, which is keeping implied volatility close to long term lows and a neutral bias on near dated expiry risk reversals. GBP/USD is under a little more pressure but the options market is barely changed with 1-month implied volatility holding the low 6's and 1-month risk reversals at long term lows for downside strikes.
One-week options now include central bank policy announcements from Japan, U.S. and UK, which has boosted related FX volatility risk premiums and should limit any setbacks.
For more click on FXBUZ
1-month expiry FXO implied volatility https://tmsnrt.rs/46oH1WD
1-WEEK EXPIRY FXO IMPLIED VOLATILITY https://tmsnrt.rs/4flDvAn
(Richard Pace is a Reuters market analyst. The views expressed are his own)
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