FXO Market Update - AUDUSD makes new lows and vols are bid

Risk continue to trade poor with equities another leg lower yesterday. FX trades relative stable with EURUSD holding above 1.0500 and USDJPY trading around 130.00 for the last week. Implied vol trades bid while realized vol starts to come lower in some pairs. AUDUSD traded down to 0.6920 today before data came out and showing strength of retail volumes. AUDUSD vols are turbo bid after spot has dropped from 0.7075 on the opening yesterday to 0.6920 lows today. 1 month is up from 13.25 on Friday to 15.25 now, trading as high as 15.70 earlier in Asia with spot on the lows. 1 month risk reversal has moved from 1.8 to 2.8 for puts in the same time and the risk premium has widen over the last days and currently trades at 2.3 vol.

Next big data point is USD CPI tomorrow and consensus is for a move lower to 8.1 from the peak at the last reading at 8.5. If this happens we might get a relief rally in risk and USD to trade lower as we get a first indication of a turn around.

The elevated vol and risk reversal makes it attractive to sell AUDUSD puts as a trade for a low CPI reading tomorrow.

Sell 1 week 0.6900 AUDUSD put
Receive 36 pips

Alternative

Sell 1 month 0.6700 AUDUSD put
Receive 40 pips

Spot ref.: 0.6960

• The Top/Bottom charts shows the top 5 and bottom 5 values/changes for at-the-money vol, risk reversal (RR) and risk premium of the 45 currency pairs we are tracking.
• Risk premium: Implied (Imp) minus realized volatility. A positive risk premium means implied volatility trades above realized volatility, i.e. the implied volatility can be seen as “rich”.
• Change: The difference between current price/volatility and where it closed 1w ago.

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Forex Options – An introduction

Forex Options – Exotic options