FX options wrap: Volatility gains, value, EUR call, US election
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Sub 1-month expiry FX option implied volatility has reached new recent highs to reflect the impending FX risk from Fed speakers and U.S. data, which culminates with Friday's Non-Farm Payrolls (NFP) report.
Implied volatility setbacks are likely to remain limited ahead of the NFP, with benchmark 1-month options soon to reflect the perceived U.S. election risk when their expiry date includes that major event from the end of this week.
One-month yuan option expiry has already moved past the Nov. 5 U.S. election date as a result of this week's Chinese Golden week holiday period, and has lent support to USD/CNH 1-month expiry options and their topside strike premiums.
FX realised volatility has increased and its outperformance in the likes of AUD/USD and EUR/GBP make related implied volatilities look more attractive.
Resilient EUR/USD continues to press up against new recent highs above 1.1200. But dealers remain reluctant to add topside over downside strike implied volatility premiums, as shown by sub 1-month expiry risk reversals.
USD/JPY implied volatility was marked lower in the wake of Friday's LDP election result, but the lower spot and increased realised volatility attracts buyers on dips.
Monday is month-end and typically attracts FX rebalancing flows which, once cleared, may provide more clarity on near term direction.
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1wk expiry FXO implied volatility https://tmsnrt.rs/4dq6tNA
1-month expiry FXO implied volatility https://tmsnrt.rs/3zEKMv8
EUR/USD 1-month 25 delta risk reversals https://tmsnrt.rs/3XKdxP1
AUD/USD 1-week expiry FXO implied volatility vs 1-week historic volatility https://tmsnrt.rs/3N5L3dJ
(Richard Pace is a Reuters market analyst. The views expressed are his own)
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