FX options not betting on a big post NFP reaction – Reuters

Heading into Friday’s US Nonfarm Payroll, the latest Reuters poll predicted an average of 870,000 jobs to have been added in July, from 850,000 in June.

On the NFP release, a big fx reaction is not envisioned, according to the FX options market.

• FX option expiries for August 6 NY cut

Key takeaways

“FX options thrive on FX volatility and outsized moves, using implied volatility to gauge actual volatility expectations - if actual volatility matches implied it will cover the premium. However, since overnight expiry options included the NFP, their implied volatilities haven't increased by much, suggesting a limited reaction is expected.”

“Overnight expiry EUR/USD implied volatility has increased from 7.0 to 8.5 which in premium terms, for a simple vanilla straddle, is a break-even of $42-pips from $34-pips in either direction.“

“USD/JPY from 7.5 to 9.0 is 41 JPY pips from 34 JPY pips, while AUD/USD has added just 1.0 implied volatility to 13.0 - a break-even of $40-pips, from $37-pips in either direction.”

“GBP/USD has a little more premium, however, as Thursday's Bank of England policy announcement is also in the price.”

Read: Nonfarm Payrolls Preview: Why the dollar could surge in (almost) any scenario