FX Options insight 30/09/24
FX option implied volatility with a sub 1-month expiration has reached new recent highs in response to the impending FX risk from Fed speakers and U.S. data. This culminates with the Non-Farm Payrolls (NFP) report on Friday. Benchmark 1-month options are expected to reflect the perceived U.S. election risk when their expiry date includes that major event from the end of this week, meaning that implied volatility setbacks are likely to remain limited advance of the NFP. Due to the Chinese Golden Week holiday period this week, the one-month yuan option expiry has already passed the Nov. 5 U.S. election date. This has provided support for the topside strike premiums of USD/CNH 1-month expiry options. The implied volatilities of instruments such as EUR/GBP and AUD/USD have become more appealing due to the fact that FX realised volatility has increased. EUR/USD remains resolute in its pursuit of new recent highs above 1.1200. However, dealers continue to resist the addition of topside over downside strike implied volatility premiums, as evidenced by risk reversals that occur within a month of the expiration date. The USD/JPY implied volatility decreased in response to the LDP election outcome on Friday. However, the lower spot and increased realised volatility continue to entice buyers on dips. On Monday, the month concludes, and FX rebalancing flows are typically observed. Once these flows have been resolved, they may offer a more precise understanding of the near-term trajectory.
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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!