OPTIONS: Solid Options Demand as Markets Reach for EUR Upside
Jun-25 08:52
- Yesterday's FX options volumes cleared $120bln - the busiest day for derivatives since June 12th and the second busiest since early May. Activity was led by a busier EUR/USD market, however EM FX was also in focus with much higher-than-usual activity across BRL, KRW and MXN.
- Given the post-ceasefire rally in EUR/USD spot, no surprise to see EUR calls dominating ($3 in EUR calls have traded for every $2 in puts so far this week). We note sizeable interest in $1.1700 calls, which see cumulative notional of over $4bln so far this week - a level spot hasn't traded above since 2021. Vol hedges have been a dominant theme so far Wednesday, with sizeable 1.1670 straddles (expiring late September) and 1.1430/1.1790 strangles (expiring early July) among the highlights.
- Where does this leave vol? The front end of the G10 FX vol curve remains under pressure. Implied vols across JPY, EUR, GBP, CHF and others are in the lower-end of the recent range, and through the bottom of the lower quartile in some instances. As a result, NZD and AUD are the G10 currencies maintaining a positive realised/implied vol ratio - and only just. This may signal a base in implied, which are holding despite the slide in realised volatility - as the expiry of the pause in Trump's Liberation Day tariffs on July 8th looms as the next potential driver of uncertainty.
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SWAPS: German ASWs Lower After Tariff Relief
May-26 08:31
German ASWs move lower this morning, on relief stemming from President Trump’s delay of the 50% EU tariffs.
- Spreads vs. 3-month Euribor are ~1.3bp lower across the curve, with essentially all of the widening that followed Trump’s initial Friday outlining of the tariff on the EU unwound.
- This suggests that the market is viewing a move back to the pre-Trump social media comment norms as the likely outcome, given the “very good” talks held over the weekend and Trump’s recent history of watering down tariff threats.
BOBL: Another Block In Futures
May-26 08:24
Another block trade lodged in Bobl futures, 3,480 lots blocked at 118.840, although prevailing quotes point to a buyer, price action would suggest it was a seller once again. DV01 ~EUR216K.
US TSYS: Lower On EU Tariff Delay, Cash Closed, Futures Volume Boosted By Rolls
May-26 08:21
President Trump’s EU tariff delay pushed TY futures through Friday’s lows in early Asia trade, with the contract in a holding pattern since then, last -0-08 at 109-26+ vs. session lows of 109-24+.
- Initial support of note at the May 22 low (109-13), with bears remaining in technical control despite Friday’s rally.
- A reminder that cash Tsys are closed for the Memorial Day holiday and futures will close early (13:00 NY/18:00 London).
- Roll activity is boosting volumes, latest estimated roll completion updates below:
- TU: 55.4%
- FV: 54.1%
- TY: 55.5%
- UXY: 43.6%
- US: 57.5%
- WN: 55.5%
