.jpeg)
Short-term FX options saw mild interest as geopolitical tensions lingered and the USD gained strength ahead of Friday's U.S. jobs report. However, the market's reaction to a drop in the unemployment rate was subdued, with post-event adjustments pushing shorter-dated implied volatility lower. Historically, January often sees a seasonal decline in FX volatility, with EUR/USD implied volatility dropping roughly 80% of the time over the past two decades. This year, however, that trend may face challenges, potentially drawing attention to cost-effective hedging strategies.
EUR/USD risk reversals for sub-1-month expiries have shifted slightly to favor downside strikes, reflecting renewed demand for protection against lower levels. This adjustment likely signals expectations for either a dip or a slow grind into a lower range, given the lack of significant catalysts. Technical resistance near 1.1600, aided by the "daily cloud twist," could keep spot prices under pressure.
GBP/USD remains within its long-term ranges but has seen intraday movements spark interest in gamma plays at lower levels. Post-nonfarm payrolls reactions have been relatively contained compared to other currency pairs, indicating some resilience.
USD/JPY maintains a firm tone, but FX options activity has been limited overall. There was a modest uptick in demand for shorter-dated 159.00 strikes ahead of the jobs data, though flows remain subdued.
AUD/USD is consolidating below 0.6700 after hitting a new long-term high of 0.6766 earlier this week. One-month expiry implied volatility dipped to fresh weekly lows at 7.6 following the jobs report. Recent options activity has shown reduced downside protection, as evidenced by narrower AUD put premiums over calls. However, cautious bulls may still opt for low-cost AUD call RKO options to maintain exposure.
With no major catalysts on the horizon and USD direction still uncertain, implied volatility hovers near long-term lows. The current market sentiment leans toward inexpensive hedging strategies and tactical plays rather than bold bets on significant moves ahead.
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. 72% and 73% 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!