FX options wrap - FX trend, JPY calls, EUR 1.10, cen-bank risk

FX option implied volatility is broadly lower since Wednesday's U.S. data risk was priced out, with a weaker USD and improved risk appetite playing their part.

Implied volatility for the majority of the G10 FX pairings is closer to its mid-March and long-term lows than early/mid April and long-term highs. That's no surprise as the FX market is still lacking any real trend in either direction.

There's been a pick up in demand for options to cover the risk of deeper USD/JPY setbacks toward 152.00 over the next couple of weeks and some paring of JPY put/USD call strikes nearer 160.00. Very short-dated USD/JPY implied volatility is finding support when USD/JPY threatens new setback lows.

Despite its post U.S. CPI gains toward 1.0900, EUR/USD option trade flows aren't yet displaying a need to cover the risk of a break of the now familiar 1.06-1.10 range that's held for most of 2024.

There might be some interest to buy shorter dated GBP/USD implied volatility amid setbacks to April lows ahead of next week's UK CPI data.

AUD/USD is underpinned by risk appetite and the weaker USD, but option price action remains relatively subdued for now. One-week NZD-related options are underpinned by next Wednesday's RBNZ rate decision.

The implied volatility setbacks in the benchmark one-month expiry contracts are being limited by the risk premium attached to the June 12 U.S. Fed policy decision and June 14 Bank of Japan policy decisions.