FX options wrap - A risk averse blip in the status quo?

U.S. dollar calls were in demand and option implied volatility was higher on Tuesday, but wider risk aversion was the catalyst and therefore unlikely to upset the recent status quo.

Markets are still awaiting clearer signals from the U.S. and other major economies on the 2024 interest rate path before committing to trades, so attention will be on Fed's Waller at 16.00 GMT for any clues. Overnight expiries reflect the additional FX realised volatility risk from Waller and Wednesday's U.S. retail sales data. Overnight expiry GBP related implied volatility also includes Wednesday's UK CPI data.

One-week expiry options now include the Jan. 23 BoJ announcement and a jump in JPY related implied volatility and it's JPY call over put premium, shows dealers aren't complacent about the risk of a policy move, albeit small.

EUR/USD implied volatility gains reflect the spot slide toward key support at 1.0848 (200-dma). However, the implied vol premium for USD calls over puts on 1-month risk reversals is only marginally higher and suggests overall downside potential for EUR/USD is still seen as limited.

AUD/USD 1-month saw the biggest overall implied volatility gains amongst the major currency pairs and highlights the dip buying opportunities still on offer here.