FX Options Insights 02/04/25
U.S. President Donald Trump will announce reciprocal tariffs at 4 p.m. New York time (2100 BST) on Wednesday, dubbing it Liberation Day. FX options suggest heightened market expectations.
Overnight expiry options, sensitive to immediate volatility, show elevated implied volatility, reflecting cautious sentiment. One-week expiry remains high due to Friday's U.S. Non-Farm Payroll (NFP) data, while one-month expiries see improved offers amid subdued spot volatility.
USD directional trades favor puts over calls against EUR, GBP, and JPY, with risk reversals indicating a growing USD put premium. For USD/JPY, risk reversals reveal increased concern over losses versus gains, factoring in the May 1 Bank of Japan policy announcement.
DTCC data highlights numerous 1.0800 EUR/USD strikes expiring this week, suggesting hedging could anchor the pair until Friday’s jobs report. USD/ZAR one-month risk reversal premiums for ZAR puts hit nine-month highs amid ZAR weakness.
Implied overnight volatility spikes: EUR/USD at 16.5 (75 pips break-even), USD/JPY at 17.0 (106 pips), AUD/USD at 16.0 (42 pips), and GBP/USD at 13.0 (70 pips), all reflecting heightened market uncertainty.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!