FX Options wrap: USD and premium gains warn of impending FX risks
FX option implied volatility remains underpinned by risk aversion as middle eastern tensions simmer and U.S. NFP, CPI and elections loom.
The USD and FX option USD calls are in demand, with an increased premium for the latter. That's apparent when looking at benchmark 1-month expiry 25 delta risk reversal contracts for the USD against the major pairings, with EUR/USD up to 0.325 from 0.1 and GBP/USD to 0.5 from 0.15 USD calls over puts this week.
Overnight expiry implied volatility now includes Friday's U.S. jobs data and flags a significant increase in related FX realised volatility risk. Its levels are just shy of the highest U.S. jobs data risk premiums for 2024, achieved before the September 6 data release.
The benchmark 1-month expiry is starting to include the U.S. election, with AUD/USD the first of the major currency pairs to include the results on November 6. Its implied volatility has posted a significant 1.0 increase to 10.6 as it factors the related risk premium. The rest of the USD vs majors will include the election from Friday, so watch for related implied volatility gains to flag the relevant risk premium.
USD/CNH options appear to favour 1-month topside strikes as spot bounces from long term lows sub 7.00 and with U.S. elections within its expiry date since Monday.
For more click on FXBUZ
Overnight/next day expiry FXO implied volatility https://tmsnrt.rs/3BvfzLy
1-month expiry FXO implied volatility https://tmsnrt.rs/3zFpkq3
(Richard Pace is a Reuters market analyst. The views expressed are his own)
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