FX options wrap - Euro risk surge, rich GBP, RBA bets
Short covering of euro-related FX volatility and put strikes since the announcement of the snap French election has driven related FX option volumes and prices to long-term highs.
Mild supply saw a slight price easing on Monday, but implied volatility setbacks are minimal and benchmark one-month expiry contracts will remain a bellwether for election-related euro risk.
Closely connected currencies like GBP also saw their prices increase last week, despite GBP spot still trading familiar ranges. Benchmark one-month expiry GBP/USD implied volatility reached 7.0 from 6.0 and now looks particularly rich when compared to one-month historic volatility at 4.3 and might favour a short volatility strategy.
AUD/USD implied volatility and its downside over upside strike premiums increased slightly last week amid risk aversion and weaker spot. They have peaked for now but appear more wary of further spot weakness. However, there's minimal additional FX volatility risk premium for Tuesday's RBA policy announcement, with very little probability of rates being lowered in 2024.
The focus and potential volatility risk is on US retail sales and industrial production data, UK CPI and policy decisions from Switzerland and the UK. Cash hedging of larger FX option strike expiries can influence FX if nearby.
For more click on FXBUZ
1-month expiry GBP/USD FXO implied vs historic volatility https://tmsnrt.rs/4c2m31X
Overnight expiry AUD/USD FXO implied volatility https://tmsnrt.rs/3Vk6USs
1-month expiry FX option implied volatility https://tmsnrt.rs/3VnGWgZ
(Richard Pace is a Reuters market analyst. The views expressed are his own)
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