BUZZ-FX options wrap - FX consolidation now evident in premium

FX option implied volatility was boosted by recent JPY and EUR gains and the broad USD decline. Post-U.S. jobs data price action shows a market still wary of further directional trading and FX volatility, but also cautious about spending too much premium, while spot markets risk some near-term consolidation.

Sub one-month expiry implied volatility has eased from last week's highs across most currency pairs, though it remains elevated compared to pre-rally levels. In EUR/USD, the recently acquired topside strike premium has also retreated in sub three-month expiry risk reversal contracts. The benchmark one-month 25-delta risk reversal shifted from 0.6 EUR puts to 0.6 EUR calls — marking its highest topside strike premium since 2022 — before easing back to 0.1 EUR calls on Monday. However, traders have not called time on more EUR/USD gains.

USD/JPY implied volatility and JPY call risk reversal premiums are holding up better, with the one-month 25 delta contract at 2025 highs of 1.8 for downside versus upside strikes. This comes amid ongoing demand for outright JPY calls as the market edges closer to 145.00 option barriers.

Elsewhere - GBP/USD remains focused on owning strikes above 1.3000 but implied volatility has eased as spot progress stalls for now. Benchmark one-month expiry is back at 8.1 from 8.6 last week. EUR/GBP is also buying topside strikes and implied volatility setbacks are more shallow, as EUR outperforms GBP.

AUD/USD has regained more familiar ranges around 0.6300 after its slide to 0.6185 last week, which takes one-month implied volatility back to 10.2 from highs since early February at 10.5.

The near-term focus for markets is Wednesday's U.S. CPI data, with the extent of the related FX volatility risk premium to be reflected through overnight expiry option implied volatility from Tuesday.

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

((Richard.Pace@Thomsonreuters.com))