G10 FX Option implied volatility is well supported by bouts of risk aversion relating to Russia/Ukraine that's underpinning the USD and JPY. The benchmark 1-month expiry is also benefiting from the inclusion of policy announcements from the U.S. and Japan on Dec. 18-19.

USD/JPY was under pressure after the latest comments by BoJ governor Ueda on Thursday, which highlights the sensitivity of this pairing to any clues about impending policy. One-month expiry implied volatility extended its post U.S. election recovery high to 11.9 from 10.35 before Tuesday's BoJ inclusion. The 1-month 25 delta risk reversal traded a new high for JPY calls over puts since September at 1.75, reinforcing the perceived downside risks to USD/JPY spot.

EUR/USD has been contained by billions of euros of nearby strike expiries this week, but price action maintains a strong conviction for deeper declines. Implied volatility is well supported at recent highs as 1-month flirts with an 8.0 handle, having dropped from 9.0 to 6.25 after the U.S. election.

EUR/USD risk reversals trade new highs for USD calls over puts since July (downside versus upside strikes), with 1-month 25 delta reaching 0.8 from 0.6 this week, despite spot prices holding above last weeks new long term lows. Friday's euro zone PMI data might be the catalyst for the next EUR/USD leg lower, if it contracts further, with gains for overnight expiry option premiums not complacent about that risk.

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

((Richard.Pace@Thomsonreuters.com))