FX Options Insights 19/08/24
Most of the significant increase in implied volatility that followed the July NFP data has been reversed due to risk aversion. But as most of them get closer to their longer-term lows from June, FX volatility risk premiums are starting to draw interest. Following last week's in-line CPI and better-than-expected retail sales data, markets have reembraced the U.S. soft landing story, increasing risk appetite and lowering option premiums. This recovery could still be hampered by the August data release on September 6, though, as there has been a following bid in options that include that date. The simmering geopolitical tensions between Russia and Ukraine, as well as between Iran and Israel, will also be known to traders; any escalation of these tensions is likely to rekindle risk aversion.
The implied volatility dip buyers in the major FX currency pairs are drawn to these risks. To maintain their optimism, EUR/USD bulls will be looking for an uptick in the EZ PMI data the following week, but large expiries could keep the pair locked at 1.1000 before. While the 1-year was paid at 6.475–6.55, the benchmark 1-month expiration implied volatility met demand at 5.25 on Friday. AUD/USD for a month On Friday, the implied volatility of FX options met demand at 8.3, the 1-month GBP/USD rate at 5.8, and the 1-month USD/JPY rate at 10.4. This week's one-month expiry FX options will feature the September U.S. and UK rate decisions.
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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!