FX options wrap - NZ tops UK CPI risk; Cheap; Fund favourites
Overnight option expiry now includes CPI data that could prove key for impending rate decisions for New Zealand and the UK, with NZD demanding much more additional volatility risk premium than GBP.
Implied volatility remains close to long term lows in many currency pairs and expiry dates and reflects the lack of realised volatility - current and expected. Historic (past realised) volatility is below implieds in many places and makes it hard to justify holding long implieds, which aren't consequently as cheap as they might seem.
The implied volatility premium for EUR/USD downside versus topside strikes via 1-month expiry risk reversals has fully reverted to 0.15 from 1.5 since the French elections and a de-escalation of wider contagion fears.
GBP/USD 1-month expiry risk reversals have seen their downside versus upside strike implied volatility premium test long term lows sub 0.2 amid the recent GBP gains toward range highs.
USD/JPY remains wary of further intervention and that's keeping FX bulls in check. It's also encouraging hedge fund demand for low cost topside RKO options that will rely on that intervention threat to protect related barriers from 162.00.
For more click on FXBUZ
EUR/USD FXO 1-month implied volatility vs 1-month historic volatility https://tmsnrt.rs/3xYv5OA
Overnight expiry NZD and AUD/NZD FXO implied volatility https://tmsnrt.rs/4cFjW4d
1-month expiry GBP/USD 25 delta risk reversal https://tmsnrt.rs/3LogzCP
(Richard Pace is a Reuters market analyst. The views expressed are his own)
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