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OPTIONS: USD/CAD, USD/MXN Topside in Firm Demand

OPTIONS
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Trump's tariff deadline really helped support derivatives markets yesterday, with DTCC data showing over $140bln notional crossing FX options markets - among the busiest sessions of the year, but no surprise given the heavy intraday vol - particularly in CAD and MXN, but EUR/JPY, EUR and CNY also saw strong flows.

  • Markets unsurprisingly favoured USD/CAD upside protection - evident in the put/call skew leaning in favour of calls. Calls with a strike at 1.50 and higher saw solid demand of $1.7bln, making up over 10% of all notional traded in the Monday session. While in outright terms that may not seem significant - the rate hasn't traded above that level since February 2003.
  • This pattern was even more evident in USD/MXN, through which over $2 in calls traded for every $1 in puts. Markets identified 21.00 and 21.50 as points of topside weakness, although call demand was evident as high as 21.9650 - 22.7500.
  • Today's trade has been far more contained - reflecting the turnaround in tariff sentiment this morning. This is typified by the reversal in yesterday's rally for front-end USD/CNH risk reversals, which corrects back to broadly flat.
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Trump's tariff deadline really helped support derivatives markets yesterday, with DTCC data showing over $140bln notional crossing FX options markets - among the busiest sessions of the year, but no surprise given the heavy intraday vol - particularly in CAD and MXN, but EUR/JPY, EUR and CNY also saw strong flows.

  • Markets unsurprisingly favoured USD/CAD upside protection - evident in the put/call skew leaning in favour of calls. Calls with a strike at 1.50 and higher saw solid demand of $1.7bln, making up over 10% of all notional traded in the Monday session. While in outright terms that may not seem significant - the rate hasn't traded above that level since February 2003.
  • This pattern was even more evident in USD/MXN, through which over $2 in calls traded for every $1 in puts. Markets identified 21.00 and 21.50 as points of topside weakness, although call demand was evident as high as 21.9650 - 22.7500.
  • Today's trade has been far more contained - reflecting the turnaround in tariff sentiment this morning. This is typified by the reversal in yesterday's rally for front-end USD/CNH risk reversals, which corrects back to broadly flat.