FX options wrap - Election pricing, JPY fears, ZAR risk
French elections have driven euro-related implied volatility to new long-term highs alongside EUR puts over call premiums on risk reversals, but there's been some relief selling after the first-round results.
EUR/USD 1-month expiry implied volatility is back at 5.9 from 6.5 on Friday and a long-term peak at 7.75 in mid June. It was in the low 5s before the French election call on June 10.
The EUR put over call implied volatility premium on 1-month EUR/USD risk reversals has retreated to 0.8 after reaching 1.5 from 0.15 since the election call.
Price action in EUR/crosses is similar, but broader volatility and euro downside risk won't revert completely until after the second round results next Sunday.
Billions of nearby FX option strike expiries can help contain EUR/USD until Friday's U.S. NFP data.
The UK election on Thursday is failing to prompt much in the way of GBP volatility risk premium. One-week and one-month implied volatility look heavy, although the risk reversals retain a slightly firmer premium for GBP puts over calls since including the results.
USD/JPY implied volatility and JPY call over put risk reversal premiums are firmer, but were significantly higher when the market was fearful of intervention in April.
USD/ZAR option implied volatility and topside strike premiums have eased amid the calming political situation but have yet to return to pre election levels.
For more click on FXBUZ
GBP/USD 1-week and 1-month expiry FXO implied volatility https://tmsnrt.rs/45OWgYT
1-month expiry USD/JPY 25 delta risk reversals https://tmsnrt.rs/3W57hly
EUR/USD FX Option strike expiries July 1-5 https://tmsnrt.rs/4bqhEog
(Richard Pace is a Reuters market analyst. The views expressed are his own)
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