Citi Options Desk – FXWW Chatroom

A strong spot vol correlation  can be observed in USD pairs. EURUSD spot up small (+0.7%), 2m given at 12.00 at the open (-0.4), 1y 10.80 (-0.2). Risk premium priced for NFP is stable (around 1% breakeven estimated). 2w has rolled into ECB . 1m gets FOMC  and a long week-end now (1m 12.55 mid). Quiet waters in the NY session have also contributed to the small retracement in vols. 2nd day in a row we don’t see the usual panic buying of gamma in NY. Hard to extrapolate to what could happen on Friday but if NFP comes up roughly in line, the day should be short. Our expectations are for a softer print with softer US dollar and much softer vols . 

Front-end and mid dated EURUSD risk reversals have also failed to keep their bid tone in NY: 6m traded 2.6, 2.7 in London but starts the day 2.55. For lucky short cash, consider selling some short-dated risk reversals (light calendar. The next repayment date is more than one week ahead: Thu 9 April IMF). In the back-end (1y+), skew is still bid. 

Flows: mostly exotics. With a relative vacuum in term of event or data release and lower level of realized vols, it has been an RKO/window KO  festival in most currency pairs. 

GBP – spot recovered post-gdp (good). 1m is approaching the election date and has already started to capture what the market thinks should be variance rich days with noise from polls and speculation. Main interests in the brokers have been for risk reversals and downside strikes. 1m 25rr traded 1.5. 1y 2.85. 

Scandies – Curves in Scandies are still bid despite the relative calm in spot this morning. NOKSEK has proved again to be a great gamma with intraday divergences between the two Krona accentuating. Risk reversals seem good value in EURSEK with Riksbank coming up and a ‘floor’ in spot around 9.10, where the central bank is uneasy with SEK strength. 

AUD – Even though AUDUSD spot is just a short distance from multi-year low vols are lower but gamma is staying very bid ahead of RBA (and a highly anticipated rate cut) next week. 1m gets RBA. Curve still sharply inverted in the front-end. Low point at 1y then back dated vols are steep. 

Asia – USD vols are grinding lower as spots fail to make new gains. Liquidity is light in USDSGD front-end with MAS dates being well in demand. It is interesting that with CNH vol dribbling lower with spot yet again planted in lower 6.20s area mid-date and back end risk reversals have seemingly found a floor. The slide lower in 6m risky has stopped at ard 2.6 lvl. I am left wondering if this largely due to utter lack of supply or if the market is in fact seeing protection buying of topside strikes at these lvls yet again (courtesy of Oleg Grishin) 

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