USD/JPY vols are steady over the NY cut, with spot trading back into 116.00. 1-wk vols are trading at softer levels at 6.75/7.75 and the 1-mth shows 7.10/7.35. The market is positioning itself for a weak Chicago PMI, which may see the curve elicit some support.
In general, dollar weakness has encouraged decent interest for vols. However, spot's inability to sustain a run below 115.50 has been a source of concern for some option players exposed to vols at higher levels. On the basis of this positioning vols are unlikely to deviate too far from current levels unless we make a successful return to previous lows.
Option positions between 115.25 and 115.00 are being targeted but these have looked liked a long shot in a market restricted by sizeable two-way flows. A strong Japanese CPI number would reinforce negative USD/JPY sentiment, with many positioned for softer levels in the medium-term.
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