FX options wrap - FX outlook, French risk, ZAR gains, yuan bets
Implied volatility is under pressure in most of the major G10 currency pairs, which is consistent with low realised volatility within familiar FX ranges. The impending U.S. Thanksgiving holiday and better risk appetite/USD losses, are playing their part.
Euro-related FX option premiums have almost fully retraced the significant gains that were made in the wake of the French election call in mid-June. Benchmark 1-month expiry EUR/USD implied volatility has reverted to 5.5 after reaching highs at 8.0 on June 14. The 1-month 25 delta risk reversals are 0.5 from a 1.5 peak for EUR puts over calls - the right to sell EUR versus buy it. This price action is consistent with a significant fall in the perceived risk of a far right majority and its detrimental effect on the euro at the French election.
GBP/USD 1-month implied volatility eyes the post pandemic lows from mid March at 5.5, with GBP put over call premiums falling toward longer-term lows, too. This highlights the lack of GBP FX realised volatility/expectations, despite the impending UK election.
USD/JPY implied volatility is falling, too, albeit with caution as markets remain nervous about the risk of further FX gains and the simmering threat of intervention.
USD/ZAR saw a decent move on Tuesday, which lifted implied volatility from already elevated levels and highlights the simmering post election uncertainty and FX volatility risk.
USD/CNH implied volatility premium for downside over upside strikes on risk reversals is said to be a result of demand for hedges to cover long cash and topside options that would benefit from further Yuan losses.
For more click on FXBUZ
eur 1-month and 1-year 25 delta risk reversals https://tmsnrt.rs/3XOsSjf
Benchmark 1-month expiry FXO implied volatility https://tmsnrt.rs/3RU23q3
(Richard Pace is a Reuters market analyst. The views expressed are his own)
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