FX option premiums continue their surge higher as this weeks key U.S. data and Donald Trump's inauguration on January 20 continue to fuel the USD rally and FX volatility risk premiums.

U.S. data includes December PPI, CPI and retail sales, with GBP/USD facing the additional risks from UK CPI, RPI, PPI, retail sales and GDP data. More USD gains and barrier breaks have lifted the 1-12-month expiry term structure in both EUR/USD and GBP/USD to ever new 2-year highs.

EUR/USD faces more option barriers at 25-50 pip intervals since breaking those at 1.0200 on Monday. These barriers are helping to limit implied volatility gains for USD calls over puts in front end expiry risk reversals (1-month peaks 0.6). However, GBP/USD risk reversals extend 2-year highs for downside versus upside strikes.

Reverse-knock-out options are a significantly cheaper alternative to regular vanilla USD call options for those still wanting to participate in the USD rally.

Buyers of outright topside USD/CNH strikes are placing more pressure on the downside strikes of front end expiry risk reversals. 1-month implied volatility trades new highs since early November at 6.3 as 1-month 7.40's traded several hundred U.S. dollars at 5.8 on Monday.

AUD/USD implied volatility is higher but so far unable to extend early January highs.

USD/JPY and cross/JPY spot markets under pressure amid renewed risk aversion, which has helped to lift related implied volatility and JPY call premiums on risk reversals.

For more click on

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Benchmark 1-month expiry FXO implied volatility GBP/USD FXO 25 delta risk reversals

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

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

((Richard.Pace@Thomsonreuters.com))