FXO Market Update - Mar 10 FXO Market Update - Mar 10 FXO Market Update - Mar 10

FXO Market Update - Mar 10

Summary:  Risk on move over the last days with a big bounce in equities yesterday. Spot has moved in risk on direction with both EURUSD and EURCHF up 200 pips from the lows. Vols have corrected lower and skew is coming back in, EURUSD 1 month down 2 vol over the last days and EURUSD risk reversal now trades 1.8 compared to 3.65 on Monday. We also see spreads start to tighten up as spot moves away from the extremes and vol trades lower. ECB today and FED next week keeps 1 week supported.

Saxo Bank publishes two weekly FX Options Market Update reports covering changes and updates on the FX Options and FX Volatility market. They describe changes in FX volatility levels, risk premium and ideas how to trade based on these.

FX volatility, source Saxo Bank. Vol column: At-the-money volatility for the given maturity. 1w column: Change of the at-the-money volatility for the given maturity over the last week.
Source: Bloomberg, 1 month vol, Blue: EURUSD, Black: AUDUSD, Green: EURPLN, Yellow: EURHUF, Red: XAUUSD

Market started the week in risk off with EUR hitting new lows on Monday and EURUSD 1 months trading up to 12.60. We have since then seen a rebound in risk with equities higher and safe heaven currencies marked lower. EURUSD spot has rebounded from the lows just above 1.0800 to now trade 1.1050. CHF and Gold has sold off with EURCHF trading below par on Monday to now trade at 1.0250 while XAUUSD topped out above 2060 to now trade below 2000 again.

Vols have adjusted lower with spot trading away from the extremes, EURUSD 1 month down 2 vol from the highs, currently trades 10.40. XAUUSD 1 month was trading around 29 vol on the highs to now trade 23.50 while EURCHF 1 month is down 1 vol to now trade 9.25. Risk reversals following vols lower with 1 month EURUSD risk reversals trading 1.8 for downside while it was 3.65 on Monday.

We have ECB today and FED next Wednesday so the front end still trades supported, EURUSD 1w at 14.0. Market is also reluctant to be short options over the weekends and Mondays are still in good demand.

CEE3 vols have also been marked lower for the first time in two weeks as spot trades away from the extremes. Both 1 month EURPLN and EURHUF down 1.5-2.0 from the highs.

Risk premiums have come lower as implied vols trades lower while realized holing up, we have seen big spot moves in risk on direction. EURUSD now trades close to fair value, implied and realized vol the same, while Scandies still looks cheap. USDJPY spot has not moved much over the last weeks and spot still in the last 6 months range. USDJPY risk premium trades at 1.25 vol.

The good thing is we see tighter spreads in the market as spot has calmed down and vols trades lower. Spreads for 1 month and longer contracts has tighten considerably over the last days while the very front hasn’t come in as much.

Source: Saxo Bank
  • 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.

FX Options Trading:

You should be aware that in purchasing Foreign Exchange Options, your potential loss will be the amount of the premium paid for the option, plus any fees or transaction charges that are applicable, should the option not achieve its strike price on the expiry date

If you write an option, the risk involved is considerably higher than buying an option. You may be liable for margin to maintain your position and a loss may be sustained well in excess of the premium received.

By writing an option, you accept a legal obligation to purchase or sell the underlying asset if the option is exercised against you; however far the market price has moved away from the strike. If you already own the underlying asset that you have contracted to sell, your risk will be limited.

If you do not own the underlying asset the risk can be unlimited. Only experienced persons should contemplate writing uncovered options, then only after securing full detail of the applicable conditions and potential risk exposure.

Learn more about FX Options:

Forex Options – An introduction

Forex Options – Exotic options

Forex Options - Webinars


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Support Centre
For existing clients, please click here to request support via the Support Centre.

Have a question about our products, platforms or services? Visit the Support Centre to find answers for our most frequently asked questions. If you are still unable to locate an answer to your question, you will also find contact details for your local Saxo office to speak with a representative.

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.