FX Options Insights 12/2/25
The anticipation of a ceasefire in Ukraine within the next few weeks has notably impacted trade activity in the last 24 hours. The demand for EUR/CHF on the upside is expected, given that a stronger EUR and a weaker CHF are probable outcomes of diminished tensions in the ongoing three-year conflict. There has been a notable rise in demand for EUR/USD topside strikes within the range of 1.0450 to 1.0650, particularly for short-term expiries. The options market failed to predict a notable foreign exchange reaction to the US CPI data released on Wednesday, a conclusion that proved to be correct, despite the data being marginally stronger than anticipated. Recent trends indicate that overall FX option implied volatility has encountered downward pressure, suggesting the possibility of additional declines in the wake of the data, particularly as FX realised volatility remains stable within established ranges.
Nonetheless, the possibility of new tariff-related developments remains a consistent risk that may prevent more significant declines in implied volatility. Participants in the USD/JPY market are noting a demand for implied volatility with expirations in the 3-6 month range during pullbacks. There is also interest in similar tenors for cross/JPY, with particular attention on downside strikes for EUR/JPY within this period. It is anticipated that these positions would benefit from increased FX realised volatility if USD/JPY were to maintain a prolonged decline beneath the 150.00 threshold. The present situation indicates that the volatility for shorter-term expiry USD/JPY, along with its associated downside premiums, is diminished as the spot price experiences an upward trend.
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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!