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Diverging PMIs Help Stimulate Above-Average FX Hedging Flow

OPTIONS
  • Upside and downside surprises in the Euro and US PMI data Tuesday helped trigger an uptick in options volumes, with DTCC data showing ~$100bln notional clear ahead of the close. Activity was led by EUR, AUD and GBP trading against the USD, while JPY, CAD and CNY trade was more muted.
  • The firmer-than-expected CPI data out from Australia has helped underpin AUD options and upside exposure in particular. Demand for 0.6550 and 0.6650 call strikes has helped skew the put/call ratio to 0.64, meaning over $4 in calls have traded for every $3 in puts. Early European hours also saw trades consistent with sizeable volatility hedges cross – evident in the 0.64/0.66 shorter-dated and 0.62/0.67 longer-dated strangles that cross over the European open.
  • EUR/JPY’s spot rally continues to generate interest in topside exposure via options. Demand for call strikes layered between 165.55 and 166.65 are helping steady the front-end of the risk reversals curve, which remains 0.5 points off the multi-month lows posted in mid-April at 2.3 points in favour of puts for the one-month.
  • The Y155.00 handle clearly remains a focal point for USD/JPY, with just under $3bln rolling off at that strike over the next week. Nonetheless, we wrote earlier on the modest downside skew for spot when capturing post-BoJ decision expiries.
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