1. FX Outlook
  2. FX Options Weekly

Macro and Vol Commentary

China's vow to reopen has provided some relief to the markets, with CNH improving markedly in recent months. But support at 6.7 formed as liquidity deteriorated and investors left for the Chinese NY holiday season.

Chinese Economy

  • Investors predict growth after the national holiday celebrations, driving the currency and stock performance higher in recent weeks
  • Still, uncertainty about the spread of the virus and consumer behaviour will create a volatile exit for the economy.
  • The short-term indicators point to an improving momentum in China.
    • PMIs showed a slower pace of contraction, and other sources pointed to a sharp improvement into a expansionary territory
      • NBS pointed to an expansion, with manufacturing and non-manufacturing industries improving to 50.1 vs 54.4, respectively.
      • Caixin pointed to a slower factory contraction, at 49.2 from 49.0 in December
      • Smaller firms and exporters are seeing greater headwinds amid weaker foreign demand
      • Infection wave has subdued, and sentiment improved, but new orders remained weak
    • Mobility and spending data during the holiday season also highlighted improving conditions in the economy despite a traditionally quiet period.
    • We expect consumption to improve in the coming weeks, partly driven by the low base case compared to last year, and partly by the pent-up demand expected to be unleashed.
  • But, the key indicators, especially the consumer sector, will continue to struggle.
    • Consumer and business performance are at multi-year lows, with both industrial production and retail sales continuing to decline to 1.3 and -1.8% y/y, respectively
    • The pace of contraction was narrower than expected, and consumers face the biggest hurdle to recover in the coming months.
  • Exports and imports have also contracted sharply in December, falling to -9.9% and -7.5% y/y, on souring demand conditions
    • While we expect domestic demand outlook to improve in the coming month, overseas market appetite will remain muted in the face of growing recessionary fears, and exports are set to remain contractionary
  • Still, news about the new phases of reopening prompted small rallies across the markets, boosting sentiment.
  • New home prices in more major Chinese cities extended gains in January, offering tentative signs of improving market confidence, as a flurry of property policy easing steps take effect.
  • We expect prices to respond to a short-term shock to the demand side, but euphoria will fade eventually, and markets will focus on core economic indicators.
  • The potential risk of another energy prices spike, driven mainly by China's reopening, is still on the table.
  • As a result, inflationary expectations could be on the rise again, forcing the markets to reassess the inflation and interest rate outlook, pushing the greenback lower in the longer term.
  • Nevertheless, the removal of lockdown restrictions is a positive move for China in the longer term, and economists are already seeing a boost in their economic forecasts for the year, up to 4.8% from 3.8% for 2023.

Fiscal and Monetary Policy Support

  • Policymakers have pledged considerable support to help the economy recover this year, and fiscal instruments such as budget deficits and special debt are more likely to be used.
  • While the Chinese PBOC stated it does not want to flush the economy with handouts, we expect the policy to be directed at consumers rather than a traditional infrastructure push.
  • At the same time, monetary policy has remained broadly unchanged
    • Loan prime rate for 1yr and 5yr remained unchanged at 3.65% and 4.30%, respectively.
  • A greater focus on businesses this year, with subsidies and easing debt conditions as the main drivers.
  • Government investment will play a stronger role in leading private investment, boosting consumption, and stabilising foreign trade and investment.

The outlook for the Chinese economy is still patchy, despite some positive data releases suggesting improving sentiment. China is back from holidays this week, but the sentiment is lacklustre. And while we expect CNH benefit on the back of reopening optimism, once the strong upside sentiment fades, markets will pay close attention to economic indicators to gauge the real appetite in the economy. These changes, however, will not be clear until the end of Q1, when the official monthly figures are released. With cautious optimism on the table in the coming weeks, we expect USDCNH to test support levels of 6.65 and 6.50, respectively, before stabilising, settling slightly higher in the longer term as optimism fades and markets start to pay close attention to real economic performance.

Sources: S&P Global, National Bureau of Statistics of China, The People's Bank of China 

Volatility Commentary

Over the latter part of 2022 we’ve generally seen USDCNH realising higher than implied and with uncertainty remaining around China’s Covid management we favour holding long gamma/vega positions on this pair. As per the above we see potential for short term moves to USDCNH 6.5-6.65 region but a longer term move up and suggest a trade to benefit from such a move below.

USDCNH 1-month Realised vs Implied Volatility

Real Vs Implied

USDCNH Trade Idea

  • Buy USDCNH Down and in Knock in Call Option
  • Priced in 10m USD Notional, 6mth expiry with strike 6.8 & Down KI barrier of 6.65 would be circa 34k USD premium to buy
  • For reference vanilla equivalent would be circa 105k USD

Positioning Charts

USDBRL NDO Positioning Data 19/01/2023 - 26/01/2023

USDBRL appetite was seen diminishing rapidly in the week ending February 2nd, with the size of the notionals decreasing sharply. Only a couple of big expiries are seen taking place; a couple of puts expiring this week, with a range between 5.00-5.15, suggesting strong prevailing downside should the options test these levels once again. Subsequently, there are many small option expiries, with some calls building appetite above 5.10. There is also some upside cover at around 5.40. We expect to see further weakness in the coming days. 

Usd Brl 19 26 (3)

USDBRL NDO Positioning Data 26/01/2023 - 02/02/2023

Usd Brl 26 02

USDCNY Vanilla Positioning Data 19/01/2023 - 26/01/2023

Appetite improved for USDCNY options, with the number of expiries growing in the week ending February 2nd. The outlook is seen mixed, with equal number and sizes of option expiries for calls and puts in the coming weeks. The near-term range has tightened to 6.70-6.80 from 6.80-7.00 in the week ending January 26th, suggesting the markets are comfortable at current levels and there is no strong directional outlook for the pair in the near term. 

Usd Cny 19 26 (3)

USDCNY Vanilla Positioning Data 26/01/2023 - 02/02/2023

Usd Cny 26 02

Charts and Tables

FX Expiries

Expiries (59)

Volatility Grid

Grid (60)

Historical Spot FX Volatility (30D Rolling)

Chart (29)

FX Matrix (today)

Spot (87)

Weekly Change

Week (68)

Key Events & Releases

Calendar (101)

Technical Charts

JP Morgan Global FX Volatility 


The index continued to weaken marginally, as it remained under the moving averages levels, but momentum on the downside is also waning. The index is testing support at 10.14 today, and a break below it would mark lows not seen since mid-December. The stochastics are continuing to decline in oversold, but the momentum is showing signs of slowing, which could signal some upside in the near term. The moving average levels are firm, and the index would first need to supersede the 50 MA at 10.26 level before testing 10.43. Alternatively, appetite below current levels could set the scene for 10.00 and 9.50 in the longer term. We expect some upside in the near term, but find resistance at the moving averages levels.

Dollar Index 


The longer-term downside trend has continued in recent weeks, but support at 101 held firm, and the index jumped slightly higher to 101.50 and has remained slightly above this level. The indicators point to a waning upside momentum, with %/K%D converging on the downside near overbought, and the MACD diff is positive and converging. To confirm a change of trend back down to 101, the index needs to break support 101.50 before retesting these levels. Alternatively, if the index breaks above the 50 MA level at 101.85, we could see levels test 102.05. The indicators point to a change of trend taking place in the near term, and we expect to see prices test 101 again. At the same time, the moving averages will cap any strong upside momentum, and the index will continue on a downward trajectory in the longer term.



The pair has been mostly range-bound in recent weeks, trading within 6.70-6.80 support/resistance levels. Yesterday’s candle tested 6.70 once again, but showed a lack of appetite to break below it, with narrower-bodied candles and longer upper shadows. The indicators point to a waning upside momentum, with stochastics overbought and now converging, and the MACD diff positive and falling. Next robust level on the upside is at 50 MA at 6.75, and if the pair breaks above it, we could see future gains to the 6.80 level. On the downside, if 6.70 is broken, this could suggest further impetus to 6.60, new lows. We expect USDCNH to remain below the 50 MA level in the near term, but find support at the robust level of 6.70.



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