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EUR/JPY Vols Well Supported as Options Target Further Upside

JPY
  • FX options activity fading into year-end, despite some support for hedging coming via the BoJ-inspired move in JPY spot. Although USD/JPY’s rallied as much as 200 pips Tuesday, hedging activity is more balanced, with upside USD/JPY interest across Y144 and Y145 call strikes countered by decent downside interest as low as Y141 and Y135.
  • EUR/JPY options volumes have been buoyed by trades consistent with sizeable call spreads that crossed in early Europe/very late Asia, and again at the NY crossover. Trades target upside in the cross via a 160/162 call spread, and captures the next BoJ rate decision on January 23rd.
  • 6m implied vols in the cross remain supported despite the pullback from BoJ-inspired highs. The gauge trades either side of 10 points and looks to have bottomed out at end-November. (We wrote on November 30th: Downtick in Implied Cheapens Positioning for FX Vol Through H1'24 - https://marketnews.com/downtick-in-implied-cheapens-positioning-for-fx-vol-through-h1-24 )
  • Yesterday’s total notional traded shows a market that’s thinning out headed into year-end, with just over $60bln notional traded via DTCC data – this compares to the near $150bln that crossed on Thursday of last week – the busiest session for the market in over three months.
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