FX options wrap - CNH puts, RBA risk, GBP bulls, EUR outlook
FX option implied volatility is lower since the 50bps U.S. rate cut and expectations of more easing and a soft landing, which should limit the FX volatility potential before the U.S. election.
USD/CNH risk premiums have fallen over recent months and Goldman Sachs notes a more favourable reward versus risk for owning certain topside strike options to benefit/hedge the risk of trade tariffs if Donald Trump wins the Nov. 5 U.S. presidential election.
The Reserve Bank Australia is almost unanimously priced to leave interest rates on hold at 4.35% on Tuesday. Overnight expiry AUD/USD FX option implied volatility trades its lowest pre RBA risk premium of 2024 at 13.0 - reinforcing those expectations with a lack of related FX volatility risk premium.
The scope for further GBP/USD gains might be limited when looking at options. Demand for topside strike GBP/USD options is relatively tame and the benchmark 1-month expiry risk reversal contract is struggling to retain a rare GBP call over put implied volatility premium.
EUR/USD 1-month risk reversals have failed to threaten August's long term high implied volatility premium for EUR calls over puts at 0.3 post Fed. The contract was sold at 0.1 EUR calls on Monday and when combined with a lack of topside demand and lower implied volatility, could signal a lack of impetus to take EUR/USD higher.
Plenty of big G10 FX option strike expiries this week might help to draw/contain FX spot.
For more click on FXBUZ
GBP/USD FXO 1-month expiry 25 delta risk reversals https://tmsnrt.rs/3XP9JgJ
EUR/USD 1-month 25 delta risk reversals https://tmsnrt.rs/3Bae6tQ
Overnight expiry AUD/USD FXO implied volatility https://tmsnrt.rs/47AzrZC
(Richard Pace is a Reuters market analyst. The views expressed are his own)
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