FX volatility measures are low, especially very short dated expiries, which reflects a lack of FX realised volatility, both past and expected. One-week daily realised volatility is just 2.0 in EUR/USD and GBP/USD and 3.0 in USD/JPY.
Benchmark 1-month implied volatility edges closer to long term lows from March, with EUR/USD just 0.3 above a multi year low of 4.9. One-month expiry looks attractive at lower levels given its inclusion of a U.S. and host of other major central bank policy announcements.
There’s a massive 11 billion euros of EUR/USD option expiries of between 1.0820-1.0900 on Friday, the bulk nearer 1.0900, and related hedging flows have been keeping a leash on EUR/USD ranges over recent sessions.
USD/JPY also eyes a huge expiry with $3-billion at 157.00 for Friday’s 10 a.m. New York cut.
Two-month expiry GBP options have seen increased demand and premium since the announcement of a British election on July 4, with GBP/USD and EUR/GBP gaining around 0.5 implied volatility.
Societe Generale advocate some USD/CAD topside strategies that eye 1.4000 and would benefit from BoC rate cuts amid falling Canadian inflation.
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