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Solid Hedging Activity Supported by CNY Options Demand

OPTIONS
  • Friday trade saw another session of ~$100bln options turnover, making for four consecutive sessions of activity above the rolling 3m average. Monday looks to follow the same pattern, with solid trade in USD/CNY, AUD/USD and EUR/HUF hedges contributing to a busy morning.
  • Front-end implied vols are seen firmer, with G10 FX 1m implied generally higher by 0.2-0.4 points, while the post-payrolls pullback in the very front-end has been contained by the proximity to this Thursday's US CPI release, at which markets expect core inflation to moderate to 3.8% Y/Y.
  • EUR/USD 1w implied remains supported above 7 points (above the rolling 3m average of ~6.8) implying a break-even of ~90 pips for a Jan15 expiry.
  • USD/CNY interest is tilted toward downside, as markets seek CNY upside protection - playing out via 7.03/7.05/7.10 put strikes. Structures follow reports late last week that state-owned banks were becoming more active in FX by swapping CNY for dollars to sell in the spot market - with the express purpose of containing the slide in the CNY, according to sources.
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