As the USD consolidates its current rebound and leaves G10 FX spot inside familiar ranges without any major break-out catalyst, FX option implied volatility is generally heavy. Near dated risk reversals in most of the main pairs suggest that FX volatility risk premium for USD call options has increased; but, those increases have now ceased.
Though Wednesday's New Zealand policy decision increases overnight expiry NZD/USD implied volatility from 12.0 to 19.0, second only to the 2024 highs at 23.0 achieved before the policy announcement. Short-term volatility risks remain evident. Thursday's U.S. CPI from Wednesday will be among the overnight expiry choices for FX traders to evaluate the degree of predicted realised volatility any connected implied volatility gains are expected to provide.
With USD/ MXN the biggest gainer, benchmark 1-month option implied volatility trades new recent highs as its expiry included the U.S. election from late last week and indicates the accompanying volatility risk from that event. To further support 1-month expiry option premiums, the Nov. 7 U.S. policy statement also now counts towards the 1-month expiry. While spot retains recent ranges, USD/CNH options experienced light selling interest; 1-month risk reversals have restored a minor upward strike risk premium.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!