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FX options wrap - Fear gauges drop, BoJ risk muted

By Reuters News

Oct 29 (Reuters) -

Broader FX implied volatility has fallen as the Fed decision passed without fanfare and realised volatility remains low. With no fresh catalyst for spot, option buyers have backed off and implied vols are lower across the board. Benchmark one-month EUR/USD has slipped from 6.5 before the Fed to 5.9, well below the five-month high of 7.25 reached on October 1.

Overnight USD/JPY is the only contract holding up as Friday's BoJ decision looms - its implied volatility around 12.0 with a break-even of around 80 pips. That is above the recent average of around 8.0 (53 pips), but about half the level before the September 18 BoJ meeting, when the bank raised rates to 1.25%. The premium is restrained because the market isn't expecting a rate hike until December. Guidance on December is therefore the likelier source of volatility. One-month USD/JPY implied vol at 6.85 is edging closer to late July and long term lows at 6.0, which is still rich by comparison to 1-month daily realised vol at 4.5.

EUR/USD dipped after the ECB decision but still unable to break support and option barriers at 1.1100. Implied volatility and downside risk premiums were easing well before the ECB announcement and remain heavy since. If spot can recover toward 1.1200 then implieds should continue their latest decline.

Large Friday expiries could influence spot if it trades nearby. EUR/USD has 1.1100 (€1.8 billion), 1.1150 (€5.5 billion), 1.1175 (€2 billion) and 1.1200 (€4.2 billion). Standout USD/JPY expiries on Friday are 156.95-157.00 ($1.6 billion), 157.75-85 ($1 billion), 158.00 ($2 billion) and 158.10-20 ($900 million). In AUD/USD, the largest are 0.7000-10 (A$1.2 billion) and 0.7025-30 (A$1.6 billion). USD/CAD expiries Friday are at 1.3900 ($752 million), 1.3960-65 ($1.4 billion) and 1.4030 ($1 billion).

Worth noting NZD related option setbacks are limited after Wednesday's surprise RBNZ rate hold and with New Zealand elections on the horizon. AUD/NZD 1-month vol holing above 6.0 for the last 24 hours

Related - Israel election deadlock jolts USD/ILS spot and options

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