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Currency Hedging Volumes Surge Alongside Vol Spike

OPTIONS
  • FX hedging activity via options has surged Monday, with markets rushing to hedge EUR exposure vs. both USD and AUD aswell as USD/CNY across Asia-Pac hours.
  • Options volumes are running higher alongside implied volatility metrics, with front-month implieds for EUR/USD nearing 8.50 points for the first time since H2 2020.
  • Risk reversals contracts tell us that markets are favouring EUR/USD downside protection, with markets now pricing a 29.3% implied probability for the pair to trade below 1.11 in one month's time (a horizon that captures both the next Fed and ECB rate decisions). This implied probability was just 16.6% this time last week.
  • Put strikes layered between 1.1000 and 1.1075 have garnered notable interest, however strikes as low as 1.0370 have traded in size already on Monday, with ~€440mln wagered at that strike. The trades eyeing that strike roll off in late May/early June.
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com

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