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BUZZ-COMMENT-Latest EUR/USD clues from FX options as Powell looms

Credit: REUTERS/DADO RUVIC

FX traders can find clues on the EUR/USD outlook from the FX options market, given its forward-looking nature and focus on volatility and direction.

Aug 26 (Reuters) - FX traders can find clues on the EUR/USD outlook from the FX options market, given its forward-looking nature and focus on volatility and direction.

Implied volatility gauges future actual volatility and is key to option premiums - it's higher in very short-dated expiry options, highlighting the volatility risk from Federal Reserve Chairman Jerome Powell's opening speech at the Jackson Hole symposium on Thursday .

However, one- to 12-month implied volatility is falling this week, highlighting the lack of actual volatility and inability of EUR/USD to break from recent ranges or extend recent and two-year highs. Benchmark one-month implied volatility is 7.7 from 8.0 this week, still well above mid-August lows at 7.1.

Risk reversal contracts show implied volatility premium for EUR calls over puts (topside) has eased from multi year highs, but remains strong, especially in medium-longer term contracts, suggesting dealers still see more risk of EUR/USD gaining than falling.

Huge 1.2000 barriers are key to more potential gains, so expect fresh demand for options if the threat grows of this level breaking.

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(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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