.jpeg)
Market sentiment took a sharp turn for the worse late Thursday, following revelations of bad loans at two U.S. regional banks, which reignited broader concerns about credit stability. Traders who capitalized on the dip in implied volatility earlier in the week were rewarded as volatility rebounded across most G10 currency pairs.
The U.S. dollar faced renewed selling pressure, allowing EUR/USD to break above the $1.1700 mark before retreating toward the 4.4 billion euro option expiry zone around $1.1670–$1.1700. Looking ahead, a slew of expiries is clustered between $1.1550 and $1.1800 next week. One-month implied volatility bounced back to 6.75, recovering from Thursday’s low of 6.4 after peaking at 7.25 on Tuesday. Meanwhile, one-month risk reversals flipped back to a 0.3 premium for EUR calls over puts, up from flat earlier in the week, as demand for 1–2-month options targeting the $1.2000–$1.2100 range surfaced on Friday.
Over in the AUD/USD pair, the Aussie dipped back toward Tuesday’s low of $0.6441. Despite a recent surge in one-month implied volatility from 8.0 to 10.0 between Friday and Tuesday, it only edged up to 9.5 on Friday from 8.75.
Meanwhile, USD/JPY continued its slide below the critical 150.00 yen level on Friday, pushing one-month implied volatility to 10.0 from 9.5, though still shy of Tuesday’s high of 10.5. Risk reversals showed a strong rebound in demand for JPY calls over puts, climbing to 0.95 from flat levels seen earlier in the week, as traders scrambled to cover short JPY call positions amid the post-election pullback from the 153.29 level. Notably, data from DTCC revealed no significant downside strike expiries next week, which could amplify volatility and drive further demand for options should USD/JPY continue its decline. Additionally, cross/JPY options saw heightened interest, particularly in AUD/JPY.
With implied volatility still hovering near historically low levels, this environment presents attractive opportunities for hedging future risks at relatively favorable costs. For traders and investors alike, it’s a good time to explore protective strategies while market conditions remain conducive.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!