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Hedging Markets Yet to Price Meaningful Turnaround in Sentiment

OPTIONS
  • Currency markets remain in rebound mode, with AUD, CAD among the session's best performers while EUR, CHF and JPY lag. Not the same case in vol markets, however, with front-end implied remaining well elevated and risk reversals still indicating a solid downside bias.
  • 1m AUDUSD vols trade either side of 10 points, the highest level since March and have nudged implied market pricing for AUD/USD to trade below 0.70 at year-end up to 20.3% from the 14.8% probability priced by markets this time last week.
  • Similarly, demand for USD/JPY downside hedges points toward still uneasy market sentiment. Around $4 in USD/JPY puts have traded for every $3 in calls for DTCC-tracked options, with Y105, Y107 and Y110 put strikes garnering particular focus. The larger trades are consistent with put spreads, eyeing a three month expiry and thereby capturing the next two policy decisions from both the Fed and the BoJ.
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
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MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
Homepagemarkets-real-timeBulletMarketsForeign Exchange Bullets

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