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EUR/GBP Upside Demand Supports Hedging Activity

OPTIONS
  • More sanguine currency options markets so far Friday, but EUR/GBP hedging markets more active, with interest in calls with strikes layered between 0.8890-8925 particularly notable. The bulk of trades roll-off at year-end - meaning the contracts capture the November, December BoE meetings and October, December ECB. Options pricing puts the implied probability of EUR/GBP trading above 0.8890 at 21.4%.
  • Despite spot's run higher toward Y150.00 today, front-end implied vols across USD/JPY remain subdued, although today's correction off the handle may have lent some support to the 1m contract: higher by 0.5 points to 8.4points after trading a new multi-month low of 7.6 points last week. Risk reversal skews are showing few signs of any expectations of a break higher in the pair: The 3m contract continues to trend with spot, but holds off the multi-month extremes from early Sept/late August.
  • Sizeable expiries are dictating play in EUR/USD today: spot is currently pinned between large strikes of E721mln at 1.0575 and E2.0bln at 1.0600.

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