FX Options Insights For NFP's
Implied volatility is a key indicator of actual volatility, essential for determining the premium of an FX option. The overnight expiry occurs the next working day at 10 a.m. in New York. Current levels of implied volatility for overnight expiry reflect traders' expectations for actual volatility following the release of U.S. jobs data on Friday. After U.S. President Donald Trump's reciprocal tariff announcements, implied volatility surged across all currency pairs and expiry dates, including overnight. Reduced liquidity during the Easter holiday further amplified these increases, reaching long-term peaks between April 7 and 14. Notably, before these gains, the overnight expiry implied volatility for the April 4 jobs data was already at its highest for 2025.
Although implied volatility levels have declined across all expiry dates due to Trump's 90-day tariff suspension, they remain significantly higher than pre-tariff levels. This highlights ongoing economic uncertainty related to tariffs and the heightened risk of further FX volatility. The overnight expiry implied volatility has risen moderately in anticipation of Friday's U.S. jobs data for April, indicating caution but not suggesting a dramatic market response.
The overnight implied volatility for EUR/USD increased from 13.5 to 16.0, resulting in a premium/break-even range of 64 to 75 USD pips in either direction. For USD/JPY, it rose from 18.0 to 21.5, equating to 107 to 128 JPY pips, while for AUD/USD, it moved from 16.0 to 18.5, or 42 to 49 USD pips in either direction. For comparison, these break-even figures correspond to EUR/USD at 104 USD pips, USD/JPY at 180 JPY pips, and AUD/USD at 57 AUD pips for the April 4 jobs data release, with significantly larger gains observed in subsequent sessions.
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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!