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Dec 04 - 11:55 AM

EUR/USD - FX Options Wrap-Brexit Dilemma, EUR/USD Bull Challenge

By Richard Pace  —  Dec 04 - 09:35 AM

GBP spot and option traders face a Brexit dilemma, leaving many side-lined and consequently increasing actual volatility risk nL1N2IK0MK.

GBP already near the top of bullish expectations (1.35-1.36), so cash longs risk a no deal scenario, and even a sell the fact reaction to a positive outcome.

Shorter dated expiry implied volatility trades long-term highs, making FX options very expensive, especially to the downside, and risks big losses should implied volatility collapse if a deal is finally agreed.

EUR/USD raced higher this week, fuelling demand for implied volatility and its topside risk premium.
Setbacks in both spot and option premium have proved minimal with sights on a wealth of option barriers and triggers at 1.2200, which should be well defended nL1N2IK0HA.

USD/JPY implied volatility and the JPY call (spot downside) risk premium have found support, but still lack demand - suggesting recent ranges are expected to hold for now (albeit with a downside lean).

Low AUD/USD implied volatility and AUD put premiums consistent with a slow spot grind higher nL1N2IK0Q8.
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gbp 1-3-12-month 25 delta risk reversals Click here

GBP/USD 1-week and 1-month option implied volatility Click here

Source:
Refinitiv IFR Research/Market Commentary

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