FX options wrap - Euro related FX risk premiums surge higher
France calls a snap election which hurts EUR and raises the cost of related options to cover the increased risk of volatility and EUR weakness.
The benchmark 1-month expiry on July 10 is working as a French election fear gauge for euro-related currency pairs as it includes both rounds of voting on June 30 and July 7. One-month expiry EUR/USD implied volatility reached 6.0 on Monday from 5.2 on Friday and 1-month risk reversals saw their EUR put over EUR call implied volatility premium reach 0.55 from 0.15.
EUR/GBP options finally wake up, with a 1.0 gain in 1-month expiry implied volatility amid renewed demand for EUR put/GBP call strikes.
There were outright buyers of EUR/USD downside options to cover short gamma positions below 1.0700, with sales of strikes above 1.0800 used to offset some of the costs. EUR put RKO options also proved a cheap and popular way to protect against further EUR weakness.
The USD was supported after Friday's U.S. NFP beat and helped to limit setbacks in short-dated expiry option implied volatility going in to Wednesday's U.S. CPI data and Fed policy announcement risks to FX. JPY related option premiums are also well supported in to Friday's BoJ decision.
For more click on FXBUZ
EUR/USD 1-month expiry 25 delta risk reversals https://tmsnrt.rs/4aV5SSs
1-month expiry FXO implied volatility https://tmsnrt.rs/4aXY1nc
(Richard Pace is a Reuters market analyst. The views expressed are his own)
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