• EUR/USD FX option implied volatility trades new highs since June - raising the cost of volatility risk premium

• Benchmark 1-month expiry now 5.75 after testing Decembers multi year lows at 4.5 in mid September

• Lower spot and risk of further losses is lifting implied volatility and the EUR put over call premium

• 1-month 25 delta risk reversals up from 0.1 to 0.85 since Sept Fed, though settle around 0.65 for now

• Dealers note ongoing demand for lower strike options between 1.1300-1.1200 with near term expiries

• If 1.1300 option barriers break, the market may become short gamma - accelerating spot losses and vol gains
EUR/USD FXO implied volatility


EUR/USD 25 delta risk reversals-

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