FX options wrap - EUR/USD leads a frenzied premium surge

EUR/USD leads EUR/cross options in a frenzied surge for implied volatility with a significant shift in directional premium to EUR calls over puts.

A lack of existing EUR/USD topside options and related hedging flows helped to fuel the spot and option gains as shorts were covered. One-week implied volatility up 3.0 within 24 hours to 11.25 and 1-month from 7.8 to 9.15 before some healthy profit taking.

One-week 25 delta risk reversals flipped from 0.5 EUR puts on Tuesday to 1.25 EUR calls on Wednesday - their highest topside over downside strike premium since 2020. One-month 25 delta erased all of the 0.65 vol premium for downside strikes that it was holding on Tuesday.

Traded volumes were huge, with DTCC reporting 12-billion euros of EUR calls/USD puts trading by midday London.

The EUR demand was broad-based and prompted implied volatility and EUR call demand in all EUR related pairs, albeit to a lesser extent.

Implied volatility remained buoyant by recent highs in other pairings, but lacked the gains and demand experienced among EUR peers.

GBP/USD's break above 1.2800 fuelled demand for options that would benefit from 1.3000 trading.