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FX Hedging Activity Remains Subdued, May Pick Up from Wednesday

OPTIONS
  • Front-end G10 FX Vols remain subdued, with 1m vols across AUD, GBP, EUR and others seeing little interest despite a data and news-heavy second half of the week. Options volumes are mirroring the quieter markets, with DTCC volumes below average so far Tuesday - the market cleared ~$70bln notional yesterday vs. YTD average ~$90bln.
  • One-week vols have started to steady above lows, with USD/JPY implied either side of 7 points as the contract captures Powell / NFP event risk. Despite this being ~2 points above last week's cycle lows, this remains considerably below both the YTD and rolling 12m average.
  • One of the few exceptions is the busier EUR/GBP market, which sees better activity thanks to trades consistent with a sizeable vol hedge crossing in early Europe; 0.8490/0.8650 strangle rolling off on April 18th - thereby capturing the March 21st BoE decision as well as the next two CPI releases (March 20th, April 17th). The strikes effectively capture the three month range, hedging against a breakout in spot over the next ~six weeks.
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