FX Options Insights 12/06/25

Increased pressure on the overall USD caused it to surpass the 1.1600 threshold, triggering new 3.5-year highs against the EUR on Thursday. However, numerous binary barriers and RKO triggers still exist that could impede further gains for EUR/USD. Implied volatility rose significantly after being previously low, reflecting a recent lack of realised volatility, or breakout risk, up until the last 24 hours. The upcoming deadline for the U.S. tariff extension on July 8 highlighted the value of benchmark 1-month expiries earlier this week, and Thursday's increases in implied volatility rewarded early positioners.

Owners of one-week expiry options have benefited from the decrease in USD and the overall rise in option implied volatility, especially with the upcoming announcements of central bank policies from the U.S., Japan, Britain, and Switzerland next week. EUR/USD's 1-month expiry risk reversal was priced at 0.6 EUR calls over puts on a substantial volume of 1 billion euros each, which helped increase related implied volatility as the spot price rose. One-week expiry implied volatility has increased from 2.5 to 9.0 since Wednesday and from 7.3 to 8.0 for 1-month.

The 1-month implied volatility for USD/JPY has risen from 10.0 to 10.8, for GBP/USD from 6.9 to 7.3, and for AUD/USD from 8.9 to 9.25. It’s also noteworthy that there’s been a renewed increase in USD/TWD implied volatility following a significant hit on Thursday. The benchmark 1-month expiry has climbed from 6.5 to 9.5 and may easily rise further due to a continuing lack of liquidity, which previously contributed to a spike to 16.5 amid the USD/TWD drop in early May. Overall, FX hedgers might begin to prefer outright USD call options, considering the substantial decline of the USD and the growing number of bets against it over the past few months.