FX options wrap - Risks glare amid the FX status-quo
June 13 (Reuters) -FX was left mostly range-bound after Wednesday's bouts of post-U.S. CPI and Fed- driven volatility, weighing back on implied volatility as a consequence of a return to the prior FX status quo.
However, there are some impending events where the FX volatility risk premium is still elevated as demonstrated by particular option expiry dates and their implied volatilities.
As Friday's Bank of Japan policy announcement looms, overnight expiry USD/JPY implied volatility has regained its pre-Fed highs and overnight EUR/JPY trades their highest in three weeks. There hasn't been a notable shift in directional volatility risk premium according to risk reversals, or much in the way of overall option demand, but the elevated premiums certainly warn against complacency.
One-week expiry options now include policy announcements from Switzerland and Britain, but related implied volatility gains suggest the former poses the biggest risk of related FX realised volatility. GBP could see more volatility potential from Wednesday's UK CPI data.
Benchmark 1-month expiry implied volatility include the French election results and is expected to remain above the levels seen before Sunday's announcement while the related FX risk remains. EUR/USD 1-month implied volatility increased from 5.1 Friday to 6.8 by Tuesday, before trading at 5.8 on Thursday.
One-month expiry EUR/USD risk reversals have been slower to surrender implied volatility premium for EUR/USD downside versus upside strikes in recognition of that simmering election risk to EUR-related currency pairs.
USD/ZAR options have finally peaked and suggest that the worst may over for South Africa's rand.
For more click on FXBUZ
Overnight expiry USD/JPY FXO implied volatility https://tmsnrt.rs/3VGvoXe
USD/ZAR 1-month expiry FXO implied volatility https://tmsnrt.rs/4b2OI5u
1-month expiry FX option implied volatility https://tmsnrt.rs/3XhlUDe
(Richard Pace is a Reuters market analyst. The views expressed are his own)
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