BUZZ-COMMENT-Key market moving events favour these FX options
Jan 13 (Reuters) - Key FX market-moving events from the United States this week make short-dated expiry USD options an attractive tool to hedge risks and capitalise on potential market over-reactions.
Tuesday brings December's U.S. PPI, Wednesday the U.S. CPI data and Thursday U.S. retail sales data. Markets will also focus on President-elect Donald Trump's Treasury Secretary nominee, Scott Bessent, who is set to appear before a U.S. Senate committee on Thursday. He might discuss trade tariffs, which have been a strong source of FX market volatility.
One-week expiry options capture all these events. If actual FX volatility surpasses the implied volatility priced into a specific option before its expiry, the option could yield a profit, with the maximum risk being limited to the upfront premium.
The attached chart shows 1-week and 1-month expiry FX option implied volatility levels compared to their past historic/realised volatility measures. There is already a strong implied volatility premium across USD G10 FX on this basis, but 1-week USD/CAD implied volatility is the closest to its historic volatility. However, EUR/USD might still be worth owning for those who think the impending events will be enough to generate more volatility than was realised over the previous 1-week.
One-week GBP/USD implied volatility is 11.5 versus a 10.7 historic measure, but expiry also includes a wealth of potential GBP volatility inducing events. December UK CPI, RPI, PPI and retail sales, November GDP, and manufacturing output are all released this week. Related nL1N3O60MK
For more click on FXBUZ
(Richard Pace is a Reuters market analyst. The views expressed are his own, editing by Ed Osmond)
((Richard.Pace@thomsonreuters.com))
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