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.
For more click on FXBUZ