Overnight FX Options Overview

U.S. Jobs Report Impact

  • Event Pricing:

    • Overnight FX options are currently pricing in the upcoming U.S. jobs report for August, a crucial indicator for assessing the U.S. interest rate outlook.

  • Volatility Surge:

    • This anticipation has led to a surge in volatility premiums, reflecting patterns typically observed before previous payroll releases.

  • CPI Report Influence:

    • One-week expirations are also factoring in the U.S. Consumer Price Index (CPI) report scheduled for next Wednesday, further increasing short-term implied volatility.

GBP-Related FX Options

  • Market Focus:

    • There is significant market interest in GBP-related FX options with expirations extending beyond the newly scheduled UK budget date of November 26.

  • Implied Volatility Trends:

    • Longer-dated implied volatility and GBP put-over-call premiums have reached multi-month highs due to expectations of a potentially unfavorable budget amid ongoing fiscal challenges in the UK.

  • Opportunity in Short-Term Options:

    • Lower prices for options expiring before the budget may present attractive opportunities, particularly with the likelihood of information leaks prior to the announcement.

EUR/USD Dynamics

  • Implied Volatility Levels:

    • Short-term implied volatility for EUR/USD remains elevated, close to recent peaks, indicating potential event risks on the horizon.

  • Spot Market Movements:

    • This elevated volatility persists despite minimal movement in the spot market, which is influenced by significant options strike expirations and related hedging activities.

  • Market Sentiment:

    • Risk reversals show a premium for EUR calls over puts, suggesting a bullish sentiment in the market.

USD/JPY Considerations

  • Caution at Key Levels:

    • There is notable caution surrounding potential moves toward or above the 150.00 level in USD/JPY, as evidenced by sustained demand for topside strike hedging.

  • Volatility Premiums:

    • Despite this caution, risk reversals indicate a strong preference for JPY calls over puts, highlighting downside risks as a key driver of volatility premiums.