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OPTIONS: EUR/JPY Upside in Demand, JPY Vols at New Post-Election High

OPTIONS
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  • Despite a slow start Wednesday, currency hedging volumes still managed to top $100bln notional ahead of the close, however markets are tracking slower so far this morning. EUR, CNY and JPY markets remain quiet - as has been the case for much of this week - however hotspots of activity remain, specifically in EUR/JPY and USD/INR.
  • Upside EUR/JPY exposure has been in firm demand across DTCC data, with over $3 in calls trading for every $2 in puts, with particular focus on Y166.05 and Y168.35 strikes. End-December maturities are drawing the firmest interest, as markets look to capture the fallout of the BoJ's 19th December rate decision - for which markets remain split on a 25bps hike.
  • Front-end implied vols continue to see support, with geopolitical risk and looming year-end rate decisions tipping USD/JPY 1m to near 12 points for a new post-election high. Notably, the premium for realised over implied vols for USD/JPY continues to contract off the mid-October highs, suggesting a normalization phase after a spell of cheap premiums.
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  • Despite a slow start Wednesday, currency hedging volumes still managed to top $100bln notional ahead of the close, however markets are tracking slower so far this morning. EUR, CNY and JPY markets remain quiet - as has been the case for much of this week - however hotspots of activity remain, specifically in EUR/JPY and USD/INR.
  • Upside EUR/JPY exposure has been in firm demand across DTCC data, with over $3 in calls trading for every $2 in puts, with particular focus on Y166.05 and Y168.35 strikes. End-December maturities are drawing the firmest interest, as markets look to capture the fallout of the BoJ's 19th December rate decision - for which markets remain split on a 25bps hike.
  • Front-end implied vols continue to see support, with geopolitical risk and looming year-end rate decisions tipping USD/JPY 1m to near 12 points for a new post-election high. Notably, the premium for realised over implied vols for USD/JPY continues to contract off the mid-October highs, suggesting a normalization phase after a spell of cheap premiums.