BUZZ-FX options wrap - Trump 2.0 dominates price action
Markets are primed for increased FX volatility once Donald Trump becomes the 47th U.S. president on Monday.
Shorter-dated expiry implied volatility gains are at the fore, as are USD calls over puts against many of the major currencies. USD/CAD option prices have seen some of the biggest recent gains after spot broke its prior post pandemic highs.
Benchmark 1-month expiry USD/CAD implied volatility traded up 8.9 Monday from 7.7 on Friday and 1-month 25 delta risk reversals spiked 1.0 to 1.75 USD calls over puts.
One-week implied volatility in most of the other USD vs G10 FX currency pairs have reached their highest levels since the U.S. election on Nov. 5.
EUR/USD and GBP/USD trade flows have been leaning heavily toward more USD gains, although stretched positioning might be setting these markets up for a retracement if Trump's declared policies aren't so quickly forthcoming, or are less aggressive than first feared.
If FX realised volatility is more subdued than anticipated, implied volatility can quickly ease from its elevated levels and the hedging of many large option strike expiries may have more influence over the course of the week.
For more click on FXBUZ
(Richard Pace is a Reuters market analyst. The views expressed are his own)
((Richard.Pace@Thomsonreuters.com))
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