BUZZ-FX options wrap - Key signals for the FX outlook

March 13 (Reuters) - FX option implied volatility has retreated from last week's new medium-term highs as realised FX volatility subsides and both USD losses and EUR gains stall.

The bulk of the selling has been concentrated in shorter-dated and front-end expiries, reflecting the current phase of FX consolidation. However, longer-dated maturities have seen more limited declines, consistent with lingering uncertainty over the medium-term outlook.

The closing of many profitable EUR/USD trades has pressured implied volatility, with benchmark 1-month expiry falling from 9.2 to 7.85 before meeting demand. One-month expiry 25 delta risk reversals settle around flat, having jumped from 0.6 EUR puts to long term highs for EUR calls at 0.6 last week.

It's worth noting an increase in demand for short-term EUR/USD downside strikes, suggesting hedging against a potential deeper pullback. The recent EUR rally was driven by expectations of an imminent Ukraine ceasefire and a German government debt limit increase - neither of which have been finalised.

USD/JPY implied volatility has declined alongside a drop in downside-over-upside strike premiums, as JPY bulls lose momentum and the pair consolidates above fresh October lows at 146.55. Additionally, risk premiums around the Bank of Japan's March 19 policy decision have faded, with markets now anticipating no further rate hikes until at least May.

AUD/USD one-month implied volatility has dipped from 10.5 to 9.3 before finding support. Buyers have so far defended the 50-day moving average at 0.6272—failure to hold this level could trigger a retest of the recent 0.6187 base, prompting fresh demand for implied volatility.

GBP/USD one-month implied volatility has found support in the low 7s after pulling back from last week's 8.6 peak.

For more click on FXBUZ

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

((Richard.Pace@Thomsonreuters.com))