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Mar 04 - 11:55 AM

EUR/USD - FX Options Wrap - Risk Dilemma, March BoJ, EUR/USD Put, CNH Low

By Richard Pace  —  Mar 04 - 09:55 AM

FX option implied volatility continues to probe ever new 2-year lows amid a lack of actual and expected FX realised volatility.

This low FX volatility environment looks set to persist until there are signs of potential policy divergence.
While impending data like Friday's U.S. NFP may offer some clues, traders face a dilemma.
Current low levels of shorter dated expiry implied volatility don't offer an attractive reward versus risk for short positions, while buyers would lose premium unless the data prompted a significant increase in FX realised volatility.

There has been a pick up in premium and demand for JPY call/USD put options expiring after the March 19 BoJ policy announcement, since comments from one of its board members on Thursday.
One-month expiry USD/JPY risk reversals trade their highest downside over upside strike premium since early January.

Despite EUR/USD being stuck in a familiar range, risk reversals are firmly underpinned for downside versus upside strikes, which reflects the perceived vulnerable side of this currency pair.

The lack of USD/CNH volatility has dragged benchmark 1-month expiry implied volatility to 7-year lows at 2.65, with little perceived risk premium for the impending annual peoples congress meeting from Tuesday.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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