FX options wrap - CPI and Fed boost FX risk premium

Wednesday's eagerly awaited U.S. CPI data is now included by overnight expiry options, with a significant rise in the level of implied volatility recognising the increased FX realised volatility risk.

EUR/USD overnight expiry implied volatility from 7.0 on Monday to 12.5 early Tuesday - a premium/break-even of 54 USD pips from 31 USD pips in either direction. Overnight USD/JPY implied volatility doubles to 16.0 - a premium of 104 from 52 JPY pips in either direction. AUD/USD overnight implied volatility increased from 10.0 to 18.0 - a new 2024 high and a premium/break-even of 50 USD pips from 27 USD pips in either direction.

Demand for shorter dated expiry options that would benefit most from a bout of increased FX realised volatility has increased this week, with USD put options favoured marginally more than USD calls. These USD puts are most apparent in EUR/USD and favour strikes in the lower-mid 1.08's.

The one-month expiry date included the June 12 U.S. CPI and U.S. Federal Reserve rate decision from Monday, with significant implied volatility gains showing the event risk premium. That expiry date will soon include the June 14 BoJ, too.