BUZZ-FX options wrap - Tariff respite, JPY call, EUR draw, BoE risk

Feb 5 (Reuters) - Conditional 30-day reprieves for Canada and Mexico trade tariffs with the U.S. prompted a sharp paring of broader FX volatility and related USD call risk premiums, at least for now.

Implied volatility fell hard from Monday's highs in all currency pairs, with the benchmark 1-month expiry USD/CAD down from 9.55 on Monday to test inauguration day setback lows at 7.25 on Wednesday.

EUR/USD recovered to the low 1.04s from Monday's new long term low at 1.0125 and is now within a huge 1.0400-50 strike expiry zone, that could help to keep the pair pinned over coming sessions. EUR/USD implied volatility and its downside over upside strike risk reversal premiums are now well below Monday's highs.

The USD/JPY spot break through key support levels had been preceded by an increase in the price of JPY calls over puts via USD/JPY risk reversals, to new 2-month highs. Implied volatility reacted to the USD/JPY spot slide by reaching its highest levels since Jan. 21, on Wednesday.

Overnight expiry GBP/USD option implied volatility was unchanged around 14.0 since including Thursday's Bank of England policy announcement. The market must feel confident in the pricing for a 25 bps cut to 4.5%, with an 8-1 MPC vote, to avoid pricing any additional GBP related volatility risk.

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