U.S. CPI data was in line with expectations, but short-dated option implied volatility setbacks were minimal as there is still the potential for increased FX realised volatility from impending central bank policy announcements.

USD/CAD overnight expiry implied volatility is the highest it has been for a Bank of Canada rate decision in 2024 - reaching 13.5 before Wednesday's announcement - a premium/break-even of 80 CAD pips.

EUR/USD Overnight includes Thursday's ECB policy announcement and its related implied volatility reaches 19.0 or 83 USD pips premium/break-even. Aside from the recent U.S. election, that's the highest overnight expiry EUR/USD premium this year.

Traders shouldn't ignore massive EUR/USD strike expiries at 1.0500, 1.0550 and 1.0600 at the end of the week.

USD/CHF Overnight expiry implied volatility has increased from 12.0 to 17.5, or 44 to 64 CHF pips since including Thursday's SNB policy decision.

One-week option implied volatility will increase from Thursday when its expiry includes the FX volatility risk related to policy announcements from the U.S., Japan and the UK.

USD/JPY options are placing additional volatility risk premium on Friday's Tankan report - the last significant data before next week's BoJ, where rate hike pricing has recently been reduced.

USD/JPY 1-month implied volatility extends the setback from last week's 13.0 peak to 10.3 amid the firmer spot tone. EUR/USD implied volatility met demand after last week's setbacks - 1-month regained 7.75 after 8.8 to 7.0 slide and ends Wednesday at 7.5. AUD/USD 1-month implied volatility is still well contained within a post U.S. election 9.0/10.0 range.

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

((Richard.Pace@Thomsonreuters.com))