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FX options wrap - Key dates stand out as FX risk premiums drop

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FX option implied volatility has extended its post U.S. CPI declines toward longer term lows from March, with little interest to buy options other than those after key data and subsequent central bank policy announcements.

The sharp decline in FX option implied volatility is consistent with lower realised volatility within familiar ranges and improved risk sentiment.

GBP options saw demand and increased premiums for contracts including a swathe of key UK data next week, with Wednesday's CPI being a potential catalyst for a BoE cut on June 20 (currently 50/50). One-month GBP/USD will include the BoE from Monday, but its already within the 1-month GBP/CHF expiry.

GBP/CHF 1-month might therefore be the pick of the bunch as it also now includes the June 20 SNB policy decision and the 72% probability of a second consecutive 25bpts cut to 1.25%. All CHF related 1-month implied volatilities are higher on Friday.

One-month expiry included June's U.S. Fed policy announcement from Monday and the initial jump in related implied volatility suggests an event risk premium should be limiting the post U.S. CPI decline for USD related options with this expiry date.

EUR/USD is within a big expiry zone with related hedging flows and fresh short dated implied vol selling, suggesting spot probably wont move too far. There are some big strike expiries in other pairings worth noting for the week ahead, too.

For more click on FXBUZ

1-month expiry FXO implied volatility https://tmsnrt.rs/4dLx2hg

1-week expiry EUR/GBP FXO implied volatility https://tmsnrt.rs/44N1OT5

EUR/USD FX option strike expiries https://tmsnrt.rs/3V1mYtp

(Richard Pace is a Reuters market analyst. The views expressed are his own)


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