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The return of crucial U.S. economic data following the government shutdown is stirring up market activity, prompting volatility hedging and boosting implied volatility levels. Traders are showing a strong preference for one-month expiry options this week, as they now encompass the pivotal December 10 Federal Reserve policy meeting.
In the GBP market, sentiment remains bearish, weighed down by ongoing fiscal and political uncertainties. Put spreads are dominating the scene, suggesting traders anticipate a gradual decline rather than an abrupt crash. This cautious outlook is reflected across various maturities and strike prices, emphasising the subdued confidence in GBP.
Meanwhile, EUR/USD options are gearing up for potential upside. The pair's rally above the 1.1600 level has driven premiums higher, with one-month implied volatility jumping by a full percentage point from recent lows. Risk reversals have increased their premium for topside strikes, sitting at 0.325 for one-month options. Additionally, outright flows are favouring EUR calls. Although significant expiries near 1.1600 at the New York cut have temporarily capped gains, once these clear, resistance is expected to ease.
Over in the AUD/USD market, bullish sentiment is gaining traction. Dealers report growing demand for AUD call options as positive risk sentiment combines with reduced expectations of RBA rate cuts and a softer USD to fuel optimism. The put-call skew has narrowed significantly, with downside premiums hitting their lowest levels since early October.
Finally, USD/CNH options have come alive after a prolonged period of dormancy. The pair's drop below the 7.1000 mark broke a decade-low volatility regime, pushing one-month implied volatility from 2.1 to 2.6. Risk reversals are now pricing in further downside, hinting that volatility could continue to rise if spot prices extend lower.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!