• Markets fully price a 25bps ECB hike Thursday to 2.25% — leaving little room for a surprise reaction

• FX options signal muted EUR/USD reaction to ECB — latest pricing and demand reflect low conviction on a move

• Overnight implied vol at 9.0 barely above pre-ECB inclusion levels — market not bracing for a big swing

• The premium/break-even for a simple vanilla straddle at 9.0 is 43 USD pips in either direction

• Dealers flag June 17 Fed decision — Warsh's first as Governor — as the real volatility risk event driving demand

• 1-week implied vol gains confirm it: the Fed, not the ECB, is where traders are seeking volatility protection

• EUR/USD downside hedging dominates — 1-month risk reversals at their most bearish since April

• For now EUR/USD is well contained within a 1.1500-1.1580 range since hitting the lower level after Fri's NFP beat
Overnight expiry EUR/USD implied volatility


1-week expiry FXO implied volatility


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