FX options wrap - NFP threat dominates already high risk premiums

Volatility has become the only constant in FX, creating ideal conditions for options to thrive. It's no surprise, then, that implied volatility has surged to extremes across many pairs - especially in overnight expiries factoring in Friday's key U.S. jobs data.

With the USD already under broad-based pressure, a weaker-than-expected set of U.S. jobs data could further undermine it. Overnight expiry implied volatility in the majority of the USD versus major currencies trades new 2025 highs.

EUR/USD option demand was at the fore this week as Germany's debt increase reignited demand for EUR. EUR/USD implied volatility reached mid-January highs and sub-3-month risk reversals flipped premium from USD calls to puts and their highest topside bias since 2020. EUR/USD traded volumes reached 2025 highs mid-week with an onus on topside strikes between 1.0800 and 1.1000 - the first level having since been achieved.

USD/JPY implied volatility extends 2025 highs and the downside-over-upside strike premium on risk reversals trades new highs since late 2024. Gains come amid consistent demand for JPY call strikes as USD/JPY extends losses to new lows since October at 147.31. The recent addition to existing knock-out triggers and barriers suggests 145.00 could be a tough level to crack.