FX Options Insight 24/09/24
Six weeks remain until the US election, but dealers note that, in contrast to the same period prior to the 2020 election, option end-user demand for FX volatility protection is lower currently. If and when this situation improves, this raises the value potential from present implied volatility levels; a major investment bank has already highlighted this value via topside strikes on USD/CNH. Massive FX option strike expiries this week have pegged EUR/USD to the lower/mid 1.11's. Today sees the expiration of billions more euros, but there are still many more around current market values.
Bulls in EUR/USD should be mindful of the danger of an FX setback. Demand for 1.10 strikes with a sub-month expiry has increased this week, and associated risk reversals have found it difficult to hold onto their newly built topside over downside strike premium. Benchmark 1-month 25 delta risk reversals at 0.2 EUR calls return to neutral following the Fed highs. Bulls in GBP/USD continue their sluggish march towards the supposed hurdles of 1.3400, but if the barriers for EUR/GBP at 0.8300 are broken, they might be more substantial and lead to higher volatility and spot losses. This week, the 1-month implied volatility of USD/JPY was at 11.6, with minimal changes. The 1-month implied volatility of AUD/USD remains at 8.7 while the spot trades near the mid-June highs of 0.6900.
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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!