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FX options wrap - Poised for more FX volatility from data, central bank meetings



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Higher G10 FX option implied volatility is consistent with higher FX realised volatility amid a recovery in the US dollar and the risk of more volatility from upcoming data and central bank meetings.

One-week expiry implied volatility is higher in all of the major pairings ahead of Friday's US Jobs data and it will increase again on Thursday to reflect any additional risk premium over next week's policy decisions from the US, UK and euro zone.

EUR/USD benchmark 1-month expiry implied volatility posted new 6-week highs at 7.0 on Wednesday. One-month risk reversals increased their downside over upside strike premium to 0.4, having failed to turn in favour of USD puts when spot tested the 1.10's. The subsequent spot setback helped to fuel demand for option implied volatility, although it peaked on Wednesday as spot was contained by 3-billion euros of 1.0800 strike expiries.

AUD/USD traders should be aware of the attractions of the same potential related FX hedging if AUD/USD is near either of two A$3-billion strikes expiring Thursday at 0.6545 and 0.6650. USD/JPY 1-month expiry implied volatility remains close to new recent highs around 9.0, with trade flows still favouring downside strikes.



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0.6545 and 0.6650 AUD/USD option strikes expire https://tmsnrt.rs/3t3P7EU

1-week expiry FXO implied volatility https://tmsnrt.rs/3GBwFqd

(Richard Pace is a Reuters market analyst. The views expressed are his own)

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