FX Options Insight 19/11/24

After a slight decline in demand for the US dollar and US dollar calls, FX option implied volatility received a renewed boost on Tuesday due to the inclusion of major central bank meetings on a key expiry date and risk aversion sparked by news from Russia. The benchmark 1-month option expiry now includes policy announcements from the US, Britain, and Japan, leading to modest gains in USD vs G10 FX implied volatility. USD/JPY 1-month implied volatility recovered all of Monday's post-Bank of Japan Ueda speech losses, suggesting greater FX volatility risk involving the BoJ. News headlines covering rising tensions with Russia ignited risk aversion in early London, giving a fresh boost to the Japanese yen, US dollar, and broader implied volatility. One-month USD/JPY saw the biggest gains and was the slowest to ease thereafter, while its downside strike premium extended gains over upside strikes. EUR/USD 1-month and 1-month AUD/USD implied volatility also rose, though not as significantly as the early central bank-induced peaks. There is a large amount of soon-to-expire EUR/USD option strikes and related hedging flows to help contain EUR/USD before Friday's key PMI data, with dealers said to be long of EUR/USD downside strikes, much of it via exotic/barrier options below 1.0500.