BUZZ-COMMENT-FX Options flag extent of US CPI risk to USD/FX

Reuters

12 Nov 2024

Nov 12 (Reuters) - Overnight/next day expiry FX options now include Wednesday's U.S. CPI data and their premium adjustments are a bellwether for the anticipated FX reaction.

FX volatility is an unknown yet key parameter for an FX option premium, so dealers use implied volatility as a stand in. Any disparity between implied and realised volatility can therefore be monetised.

Overnight expiry implied volatility has increased more since including Wednesday's U.S. CPI than for the October release, and while this suggests a greater risk of realised volatility by comparison, it's still fairly low and has taken a back seat to jobs data over recent months.

Overnight expiry EUR/USD implied volatility opened at 13.0 on Tuesday from 10.0 on Monday - a premium/break-even for a simple vanilla straddle of 57 USD pips from 44 USD pips in either direction. For context it reached 29.0 or 132 USD pips over the U.S. election.

Overnight GBP/USD implied volatility from 10.0 to 12.5 or 53 USD pips to 67 USD pips. Overnight USD/JPY from 12.0 to 14.5 or 77 JPY pips to 93 JPY pips and AUD/USD from 13.5 to 17.0 or 37 USD pips to 46 USD pips in either direction.

The latest USD gains have lifted broader FX option implied volatility with EUR/USD at the fore in G10 FX

For more click on

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Overnight expiry FXO implied volatility

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

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

((Richard.Pace@thomsonreuters.com))

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FX volatility is an unknown yet key parameter for an FX option premium, so dealers use implied volatility as a stand in. Any disparity between implied and realised volatility can therefore be monetised.    Overnight expiry implied volatility has increased more since including Wednesday's U.S. CPI than for the October release, and while this suggests a greater risk of realised volatility by comparison, it's still fairly low and has taken a back seat to jobs data over recent months.    Overnight expiry EUR/USD implied volatility opened at 13.0 on Tuesday from 10.0 on Monday - a premium/break-even for a simple vanilla straddle of 57 USD pips from 44 USD pips in either direction. For context it reached 29.0 or 132 USD pips over the U.S. election.    Overnight GBP/USD implied volatility from 10.0 to 12.5 or 53 USD pips to 67 USD pips. Overnight USD/JPY from 12.0 to 14.5 or 77 JPY pips to 93 JPY pips and AUD/USD from 13.5 to 17.0 or 37 USD pips to 46 USD pips in either direction.    The latest USD gains have lifted broader FX option implied volatility with EUR/USD at the fore in G10 FX      For more click on       <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Overnight expiry FXO implied volatility       ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>(Richard Pace is a Reuters market analyst. The views expressed are his own)((Richard.Pace@thomsonreuters.com))","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1,"code":"91000000","status":"200"}}}