FX Options Insights 06/01/25
In trading on Monday, the USD experienced a broad pullback affecting FX option implied volatility, triggered by a Washington Post report suggesting a possible relaxation of Donald Trump's tariff policies. Although Trump subsequently refuted these claims, leading to a partial USD recovery, it remained below its recent two-year high. This episode underscores to option traders the potential for market volatility, especially when Trump has the ability to alter policies, which could mitigate deeper declines in implied volatility.
Short-term FX option implied volatility stays elevated, particularly with the upcoming U.S. Non-Farm Payrolls (NFP) report on Friday. Last Friday, implied volatility for one-week expirations rose by 1.5 across major currency pairs, mirroring the increases seen ahead of the December 6 jobs data release. Although USD/JPY implied volatility is more subdued compared to other G10 currencies, it maintains a significant risk premium when compared to historical and fair-value standards.
For USD/CNH options, there are growing concerns about spot levels potentially surpassing 7.4000, with rising demand and higher premiums for upside strikes noted on Monday. Conversely, USD/CAD saw a concurrent decrease in both spot and implied volatility, with lower premiums for topside strikes compared to downside ones. If G10 FX stays range-bound leading up to Friday's jobs data, large soon-to-expire option strikes could influence spot prices.
Soon-to-expire FX option strikes can bolster nearby support and resistance levels and potentially influence FX price movements as the 10 a.m. New York cut expiry nears each day. Therefore, it's helpful to be aware of where larger strikes are situated. As this week progresses towards Friday's U.S. Non-Farm Payrolls (NFP) data, volatility could remain within recent ranges, making nearby FX option strike expiries more impactful.
Key EUR/USD strikes on Tuesday features 1.0300 with 3.5 billion euros, 1.0325 with 789 million euros, and 1.0500 with 1.2 billion euros. Thursday's significant levels include 1.0200 with 4.2 billion euros, 1.0250-70 with 3.2 billion euros, 1.0300 with 2.5 billion euros, 1.0350 with 1.2 billion euros, 1.0440-50 with 1.7 billion euros, and 1.0500 with 1.7 billion euros. For Friday, strikes are at 1.0300 with 1.4 billion euros, 1.0315-25 with 1.6 billion euros, 1.0350 with 1.3 billion euros, and 1.0400 with 1.8 billion euros.
In GBP/USD, prominent strikes include 1.2465 with 406 million pounds on Tuesday, 1.2450 with 355 million pounds on Wednesday, and on Thursday, 1.2390 with 740 million pounds and 1.2435-40 with 590 million pounds. The largest EUR/GBP strike occurs on Wednesday at 0.8300 with 1.4 billion euros.
For AUD/USD, larger strikes are scheduled for Tuesday at 0.6190 with A$780 million, Thursday at 0.6270 with A$600 million, and Friday at 0.6185 with A$1.5 billion.
Significant USD/CAD strikes for Wednesday at 1.4350 with $580 million and 1.4460 with $1.1 billion, and Friday at 1.4170-75 with $2.1 billion, 1.4300 with $600 million, and 1.4325-30 with $1 billion.
This week, there are few notable USD/JPY strikes, except for a considerable one on Wednesday at 157.50 with $1.5 billion.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!