FX options Insight

Volatility has emerged as the sole constant in the FX market, fostering optimal conditions for options trading. It is not surprising that implied volatility has soared to unprecedented levels across numerous currency pairs, particularly for overnight expirations that account for Friday's crucial U.S. jobs report. With the USD already experiencing widespread pressure, a disappointing U.S. jobs report could further weaken it. Implied volatility for overnight expiries involving the USD against major currencies has reached new highs not seen since 2025.

Short-term expiry implied volatility was already high due to the recent decline of the USD, particularly against the EUR, as the increase in German debt/spending has strengthened the EUR this week. Furthermore, the jobs data introduces additional uncertainty and volatility risks that could worsen the struggling USD, especially if the numbers are weak.

For overnight expiry, the implied volatility for USD/JPY reached 22.00, translating to a premium or break-even point of 136 JPY pips in either direction. This is a significant rise compared to the average implied volatility of about 14.0 or 86 JPY pips observed in recent weeks. The implied volatility for EUR/USD during the overnight expiry hit 20.0, equating to a premium/break-even of 90 USD pips in both directions. It reached a peak of 15.0 or 67 USD pips amidst Wednesday's broader implied volatility surge, which coincided with the European Central Bank's policy decision, and traded as low as 9.0 or 40 USD pips the previous week. In the case of AUD/USD, the overnight implied volatility reached 14.5, or 39 USD pips in either direction, following the inclusion of the U.S. jobs data. This is an increase from 10.0 or 26 USD pips on Wednesday and from lows around 8.0 or 21 USD pips last week.