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OPTIONS: Positioning for CHF Weakness Still a Dominant Theme Despite Spot Rally

OPTIONS
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  • Overall options volumes bouncing back well after a subdued and quiet start to the week. Nominal volumes cleared $100bln yesterday for the first time since the start of May - and are set for another decent showing as per DTCC data. 
  • Given the strength in spot, CHF options are in demand against both the USD and EUR, however markets are still showing solid demand for xxx/CHF upside exposure, evident in the interest across 1.00 calls in EUR/CHF, 0.9050-0.9070 and as high as 0.9520 in USD/CHF. 
  • EUR/CHF's run toward parity had been carefully watched in recent weeks, particularly as it coincided with a firm build in the market's net short CHF position (which hit a nadir of 42.5k - a six year low - in April). Options markets have trimmed the implied likelihood of the cross trading above 1.00 by end-Q2 to 6.6%  - less than half the 17.4% pricing implied this time last week.
  • Already stretched positioning and Jordan's warning of the threats of a weak currency could squeeze this implied outcome further. Recall the next support in EUR/CHF lies at the 50-day EMA (0.9772). A clear break of this average would signal potential for a deeper retracement and expose the May 3 low (0.9730).
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  • Overall options volumes bouncing back well after a subdued and quiet start to the week. Nominal volumes cleared $100bln yesterday for the first time since the start of May - and are set for another decent showing as per DTCC data. 
  • Given the strength in spot, CHF options are in demand against both the USD and EUR, however markets are still showing solid demand for xxx/CHF upside exposure, evident in the interest across 1.00 calls in EUR/CHF, 0.9050-0.9070 and as high as 0.9520 in USD/CHF. 
  • EUR/CHF's run toward parity had been carefully watched in recent weeks, particularly as it coincided with a firm build in the market's net short CHF position (which hit a nadir of 42.5k - a six year low - in April). Options markets have trimmed the implied likelihood of the cross trading above 1.00 by end-Q2 to 6.6%  - less than half the 17.4% pricing implied this time last week.
  • Already stretched positioning and Jordan's warning of the threats of a weak currency could squeeze this implied outcome further. Recall the next support in EUR/CHF lies at the 50-day EMA (0.9772). A clear break of this average would signal potential for a deeper retracement and expose the May 3 low (0.9730).