USD/JPY vols have settled down, with spot trading back into the 121.00 region. The most notable move is the easier tone in the short end, with the 1-wk at 7.55/8.30 vs a lofty 8.55/9.30 at the start of the European session. Movement in the remainder of the curve has been less pronounced, although there have been some good moves with some large accounts taking advantage of the improved vol levels.
The 1-mth is at 7.20/7.50 vs 7.60/7.85 and the 3-mth shows 7.05/7.35 vs 7.40/7.70. 6-mth and 1-yr vols currently show 6.90/7.20 vs 7.25/7.50 and 7.15/7.35 respectively. Heavy demand was noted into the European session, with 1-mth trading as high at 7.7% and 1-yr trading from 7.15-7.25%. There was heavy interest for 120.00 strikes, largely in a 1-wk to 2-wk horizon. 2-wk would capture the start of the G7 meeting and is expected to stay bid. Despite the volatility in spot this week there have been range bets put on.
The most notable one to mention is a 120-123 DNT over a 2-mth horizon. This would explain some of the aggressive short dated interest across 120.00 and the decent bid interest that emerged via spot out of Asia. Risk reversal retain their skew for JPY calls over, with 1-mth 25-d indicating 0.80/1.10. This is a touch easier compared with the 0.85/1.15 high we saw this morning.
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