FX options wrap - Intervention and election bets, expiries
A lack of FX realised volatility is keeping a lid on implied volatility again on Tuesday, but sellers prefer dates before the impending French election risks in euro related pairs.
Short-term FX risk comes from Australian CPI data on Wednesday, but a lack of additional FX volatility premium for overnight AUD/USD options suggests the data possess little risk of breaking the pair out of familiar shackles.
One-week expiry euro related implied volatility is significantly higher after including the first round of the French election next Sunday. That risk is underpinning other euro related expiry dates, too. Initial gains in 1-month expiry EUR/GBP implied volatility after including the UK and French elections highlights the significant FX realised volatility risk premium being attached to the French vote.
Despite threatening the late April/early May levels at which Japanese authorities last intervened, price action in USD/JPY FX options is not consistent with fears of a repetition. Implied volatility gains are significantly below those seen before prior intervention. Implied volatility premiums for JPY calls over puts on 1-month 25 delta risk reversals, are languishing at post-intervention lows, compared with the longer-term highs achieved prior.
Plenty of large G10 FX option strike expiries may have a greater influence on FX over the remainder of this week, given the lack of FX realised volatility.
For more click on FXBUZ
EUR/GBP 1-month expiry FXO implied vs 1-month historic https://tmsnrt.rs/4ewkoU1
1-month USD/JPY 25 delta risk reversal https://tmsnrt.rs/45F3sqg
EUR/USD FX option strikes expiring between June 25-28 https://tmsnrt.rs/3VCwoe2
(Richard Pace is a Reuters market analyst. The views expressed are his own)
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