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Oct 16 - 11:55 AM

USD/JPY - FX Options Wrap - USD/JPY Flies In Face Of Middle East Risk

By Richard Pace  —  Oct 16 - 09:45 AM

There was almost panic to buy FX options late on Friday amid fears of an escalation in the Israel conflict over the weekend, with many of the benchmark 1-month implied volatility contracts nearing recent highs amid the usual post weekend mark-ups early on Monday.

EUR/CHF dealers noted increased demand for downside strikes and a jump in EUR put/CHF call volatility premiums on risk reversals.

Broader front end expiry implied volatility is now easing with the USD, but risk reversals are slower to surrender any USD and CHF call premium.
EUR/USD risk reversals are trading their highest downside versus upside strike volatility premium since March.

However, despite the geopolitical risk being evident in other currency pairs, USD/JPY implied volatility has been falling.
One-week expiry trades 18-month lows below 6.0 - suggesting good value when compared with realised/actual volatility measures from the previous week.
One-month expiry implied volatility is closer to its long-term lows than its G10 FX peers, but does retain a slightly bigger premium to 1-month historic/realised volatility.

Two-month expiry G10 FX options have seen a pick up in demand since that expiry dated moved to Dec.
14 late last week.
It includes interest rate policy announcements from the U.S., Eurozone, UK, Switzerland and Norway.

Stand out G10 FX option strikes expiring this week.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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