### POV: CNY OPTIONS SEE NO NEW DAWN IN....>

CHINA FX: ### POV: CNY OPTIONS SEE NO NEW DAWN IN SINO-US RELATIONS

-The spillover from the harmonious Trump-Xi dinner party Saturday is evident in

spot markets today as USD/CNH briefly drops below 6.88 for the first time since

early October. Options markets, however, have chosen to look through today's

strength in CNY to focus on the possibility of renewed upside pressure for

USD/CNY - possibly a reflection of the decision to kick the tariff can down the

road for three months, as opposed to calling off trade tensions altogether.

-USD/CNY call options have been in firm demand in a very high volume session:

demand for calls over puts sits at the highest in over a fortnight (by both

number of trades and notional traded) with 1.7 calls bought for every put so far

Monday. The average USD/CNY call strike bought today sits well north of Cny7.00,

proving that markets still see a material risk of protracted CNY weakness in the

coming months.

-USD/CNY implied vol for tenors out to one year dropped sharply, helping cut the

cost for options buyers looking to hedge against any CNY weakness to come,

helping buoy volumes further.