G10 FX option implied volatility continues to languish at long term lows - a reflection of the low actual volatility environment that isn't expected to change too much, for now.
The market expects the U.S. Federal Reserve to hike U.S. rates a final 25bps on Wednesday and signal a softer tightening bias going forward.
The dot-plot won't be updated until June which should limit the scope for USD related volatility and helps to justify the tame implied volatility premiums for options expiring just after the meeting.
Any gains in overnight USD related implied volatility at Wednesday's open will reflect that risk premium as expiry moves to 10 a.m.
New York on Thursday, but be aware that overnight EUR/USD options will then also reflect the risk from Thursday's European Central Bank. Price action in broader EUR/USD options is consistent with a continuation of the status quo.
The Reserve Bank Australia surprised markets with a 25 bps hike on Tuesday, but the subsequent AUD/USD rally was capped by huge 0.6700-15 option expiry hedging and big tech resistance.
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