US Markets

BUZZ-COMMENT-How FX markets are pricing Fed reaction

Credit: REUTERS/MOHAMED ABD EL GHANY

Overnight FX options now expire 10 a.m. New York Thursday and capture Wednesday's US Federal Reserve policy announcement, as well as Thursday's U.S GDP data, so their pricing offers clues on the perceived reaction in the spot market.

July 29 (Reuters) - Overnight FX options now expire 10 a.m. New York Thursday and capture Wednesday's US Federal Reserve policy announcement, as well as Thursday's U.S GDP data, so their pricing offers clues on the perceived reaction in the spot market.

Options thrive on actual volatility, and how much of that dealers expect will be reflected in implied volatility. That's below pre-Fed capture levels, suggesting little spot reaction is expected.

Overnight expiry EUR/USD implied volatility is 12.5 from 14.0 early Tuesday -- in premium terms -- a break-even for a simple vanilla straddle of 61 pips in either direction between now and 10 a.m. New York Thursday .

USD/JPY overnight implied volatility is 11.5 from 12.5 Tuesday - a break-even of 50 pips in either direction, although recent flows show more demand for overnight expiry JPY calls with strikes as low as 104.00 - suggesting a dovish lean.

AUD/USD overnight implied volatility is 16.0 from 18.0 Tuesday - 48 pips break-even in either direction between now and 10 a.m. New York Thursday.

For more click on FXBUZ

Overnight expiry FX implied volatilityhttps://tmsnrt.rs/3hM3aDT

(Richard Pace is a Reuters market analyst. The views expressed are his own)

((Richard.Pace@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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