FX Options Insights: Non- Non Farm Payrolls Volatility Expectations
Overnight FX options expiring at 10:00 a.m. New York/15:00 GMT on Friday now include January's U.S. jobs report, leading to an increase in associated premiums, reflecting anticipated market reactions. Dealers rely on implied volatility as their best estimate of the expected FX realised volatility from this event.
For EUR/USD, implied volatility increased from 13.0 to 15.0, raising the vanilla straddle premium/break-even point from 56 pips to 65 pips in both directions. USD/JPY saw a sharper rise in implied volatility, jumping from 14.0 to 17.5, with the straddle premium increasing from 89 pips to 111 pips. GBP/USD options, despite excluding any premium for the Bank of England meeting, experienced implied volatility growth from 14.0 to 17.0 due to the U.S. jobs report, lifting the break-even point from 73 pips to 88 pips. AUD/USD also showed an implied volatility uptick, climbing from 9.5 to 12.5, with the premium rising from 25 pips to 33 pips in either direction.While these increases highlight some expected FX movement post-jobs data, the implied volatility levels (other than USD/JPY) remain lower than those seen before December's U.S. jobs report release, indicating tempered expectations for significant market reactions this time
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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!