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Demand for EUR/USD, GBP/USD Downside Evident in Early Hedging Trades

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  • The EUR spot rally on the back of the firmer PMI data has done little to dissuade demand for downside, with sizeable EUR puts trading across the morning. This is typified by the close to €500mln traded against 1.0430 put strikes - eyeing a late May expiry to capture the run-up to the June ECB rate decision, the meeting at which most of the Governing Council appear to be eyeing for a first rate cut of the cycle.
  • Elsewhere, USD upside exposure was also evident in the busy GBP/USD hedging market overnight. A series of downside trades crossed at ~2am UK time, consistent with a 1.20/1.19 calendar put spread appearing to target the potential inflection point for the BoE policy cycle in H2 this year.
  • Currency hedging markets are posting a more muted start to the week relative to last week's busy trade (the 5-day average for last week saw ~$120bln notional trade per day vs. yesterday's ~$90bln). Implied vol markets are holding up well in the JPY front-end, with one-week vols consolidating the recovery off the late March lows ahead of this week's BoJ decision: today's 9.3 points is close to 1.5 points over the YTD average.
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  • The EUR spot rally on the back of the firmer PMI data has done little to dissuade demand for downside, with sizeable EUR puts trading across the morning. This is typified by the close to €500mln traded against 1.0430 put strikes - eyeing a late May expiry to capture the run-up to the June ECB rate decision, the meeting at which most of the Governing Council appear to be eyeing for a first rate cut of the cycle.
  • Elsewhere, USD upside exposure was also evident in the busy GBP/USD hedging market overnight. A series of downside trades crossed at ~2am UK time, consistent with a 1.20/1.19 calendar put spread appearing to target the potential inflection point for the BoE policy cycle in H2 this year.
  • Currency hedging markets are posting a more muted start to the week relative to last week's busy trade (the 5-day average for last week saw ~$120bln notional trade per day vs. yesterday's ~$90bln). Implied vol markets are holding up well in the JPY front-end, with one-week vols consolidating the recovery off the late March lows ahead of this week's BoJ decision: today's 9.3 points is close to 1.5 points over the YTD average.