FX options wrap - USD gains and Trump trades are key drivers
FX option implied volatility remains broadly heavy amid the ongoing lack of FX realised volatility, but the impending U.S. election and the risk of an extended USD recovery maintain demand and premium for the 'Trump trade'.
Overnight expiry EUR related implied volatility was the lowest for any ECB policy announcement in 2024 - consistent with the lack of actual volatility in its wake. However, there was ongoing demand for post election USD calls which helped 1-month EUR/USD 25 delta risk reversals reach above 0.45 and kept the 1-month implied volatility underpinned at 7.4 as EUR/USD kept edging down toward 1.0800.
GBP/USD 1-month implied volatility was sold 8.0 and AUD/USD 1-month at 10.3 - new lows since expiry included the U.S. election from early October and consistent with the lack of FX realised volatility.
However, the likes of 1-month MXN and CNH implied volatility are much better supported given the additional implications for those currencies if Donald Trump should win the U.S. election.
For more click on FXBUZ
1-month expiry GBP/USD FXO risk reversal https://tmsnrt.rs/3BKOvYJ
USD/CNH 1-month expiry FXO implied volatility https://tmsnrt.rs/4dVU5Vv
(Richard Pace is a Reuters market analyst. The views expressed are his own)
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