BUZZ-FX options wrap - Tariffs and US data now key to direction

Thursday's tariff comments from President Donald Trump dented risk appetite and lifted the USD broadly higher, with CAD being the biggest loser. Implied volatility had been well supported above recent and longer term lows in the major currency pairs and found renewed demand as the USD spiked.

Markets are now poised to see if tariffs will be imposed on Canada, Mexico and China on March 4 which should underpin implied volatility for now, especially USD/CAD which has already seen plenty of realised volatility this week.

Markets will also be focused on Friday's U.S. jobs data for Fed policy clues and USD direction, with volatility event risk premium now evident in 1-week expiry FX options.

EUR/USD implied volatility and its downside over upside strike premiums were supported and rewarded holders after renewed gains amid the spot slide sub 1.0400. However hedging flows associated with massive expiries and hopes of a successful meeting between Trump and Ukrainian President Volodymyr Zelenskiy on Friday pinned spot to a 1.0400 axis and brought back some option supply.

GBP/USD looks more resilient as the UK seeks to avoid tariffs and hopes to strike a fresh U.S. trade deal. However, it still suffered amid the USD gains and its implied volatility consequently increased.

USD/JPY demand for downside strikes had driven implied volatility and JPY call premiums on risk reversals to new multi-week highs after spot broke below 150.00 on February 20. It made a rapid recovery to 151.00 on Friday but had little real impact on option prices.

AUD/USD implied volatility was given a further boost amid the latest spot setback, with 1-month reaching 10.0 from last week's 8.3 lows, taking it to levels that now appear very rich when compared with past 1-month daily realised volatility at 6.7. Related comment

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

((Richard.Pace@Thomsonreuters.com))