BUZZ-FX options wrap - Ukraine hopes drive trade flow

Hopes of a ceasefire in Ukraine over coming weeks have been behind some of the main trade flow in the last 24 hours.

No surprise to see EUR/CHF topside strike demand at the fore, as a firmer EUR and weaker CHF are the most likely outcomes from an easing of tensions in the 3-year old conflict. EUR/USD topside strikes between 1.0450 and 1.0650 with sub 3-month expiries have also seen increased demand.

The options market wasn't pricing a significant FX reaction to Wednesday's US CPI data, which proved justified, despite being slightly stronger than expected. Broader FX option implied volatility has been under pressure over recent sessions and may have more downside potential post data as FX realised volatility remains subdued within familiar ranges.

However, the threat of more tariff-related headlines will remain a lingering risk that helps to limit any deeper implied volatility setbacks.

USD/JPY dealers note demand for 3-6-month expiry implied volatility on dips, with similar tenors meeting demand in cross/JPY and a focus on EUR/JPY downside strikes for this period. It's assumed that these positions would benefit from increased FX realised volatility should USD/JPY ever see a sustained breakdown below 150.00. For now, shorter-term expiry USD/JPY volatility and its downside over upside strike premiums are lower as spot trades higher.

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