From "Trump trades" to critical data releases and looming central bank meetings, FX option price action reveals how markets are bracing for upcoming FX risks.

Month-end FX rebalancing flows have weighed on the broader USD since Wednesday, with U.S. holiday-thinned liquidity amplifying some of the moves.

Post-election demand for USD calls - particularly against currencies likely to be impacted by Trump-era tariffs - remains strong. These options, which grant holders the right to buy USD at a future date and set price, have seen rising premiums.

USD calls have been especially popular against the EUR. However, recent retracements in their premium relative to USD puts, as seen in risk reversal contracts, suggest any further EUR/USD weakness may unfold more gradually.

One-week expiry FX options now encompass the Dec. 6 U.S. Non-Farm Payrolls (NFP) report, driving 1-week implied volatility higher. Implied volatility - a gauge of actual volatility expectations - has surpassed the levels seen when last month's NFP was included, underscoring the market's sensitivity to the data. With the report likely to influence the Federal Reserve's Dec. 13 policy decision, it remains a key driver of near-term positioning.

The standout mover on Friday was USD/JPY, which experienced a sharp drop below 150.00, pushing benchmark 1-month expiry implied volatility to post-U.S. election highs of 12.75. Market attention was already centered on the upcoming Dec. 19 BoJ meeting, and friday's moves, driven by stronger-than-expected Tokyo inflation data, have only heightened its significance.

Stand-out FX option strike expiries for the week ahead can be found here.

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

((Richard.Pace@Thomsonreuters.com))