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Hedging Against Modest USD Weakness Post-Election Still Favoured

OPTIONS

Currency hedging volumes among the major pairs are below average for this time of day, with more muted EUR/USD, USD/CNY and USD/JPY activity dragging the market slightly. Vols are more mixed with DMFX 3m implied vols all on the backfoot while front-end 1m USD/JPY vols inch higher.

The option expiry report for the week following the US Presidential elections continues to lean toward hedging against modest USD weakness (EUR/USD higher, USD/JPY lower) - this has been reflected in risk reversals, with 1m EUR/USD RR edging higher across the second half of September, although this has stabilised over the past week or so as the contract begins to capture the election results.

Some sizeable option expiries in EUR/USD today could keep spot pinned down: $1.1735-50 (E1.9bln), $1.1760-75 (E591mln), but it's tomorrow's NY cut which sees the more sizeable contracts roll off across EUR, JPY, AUD and elsewhere.

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