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Macro and Vol Commentary

EURUSD has found support around 1.16 in the last couple of weeks and has been seen trading near the level. Central bank statements on both sides of the Atlantic in the coming weeks are likely to reveal the outlook for the major economies for the remainder of 2021, going into the next year.

US economy

  • CPI accelerated slightly in September, up 5.4% y/y.
    • It was also higher month-on-month, up by 0.4%, suggesting the weakness in the last couple of months could have been temporary.
  • Core inflation, however, remained relatively low, at 0.2% m/m, and the biggest contributors, such as used cars, and airfare have softened due to the second-largest COVID-19 outbreak the nation has experienced during the month.
  • PPI rose by 8.6% y/y in September, the slowest pace this year, in large due to the reduction in the cost of services.
    • This, however, could be temporary as there are still plenty of upside pressures coming from supply chains, and shortages of raw materials prevail.
    • Energy prices have rallied, given the impact of a prevailing crisis, gasoline was up 1.2% m/m and 42.1% y/y.
  • The longer-term trend of higher prices is likely to prevail in the last couple of months of the year, however, we do see some softness coming from the demand side as prices remain elevated and purchasing power diminishes.
    • The shipping costs have been on the decline in the last couple of weeks as the amount of backlog subsided.
  • Likewise, the outlook remains muted as consumer sentiment continues to fall, with the University of Michigan sentiment index down to the second-lowest level since 2011, as buying conditions deteriorated.

The Fed

  • It is now highly forecast that the Fed will begin to taper its $120bn a month bond-buying programme in November.
    • It is still far off to hike interest rates, and they are only expected to take place in mid-2022.
    • The risks prevail, and if inflationary pressures remain consistently high, around 5% y/y, that could push the decision to tighten closer to the beginning of next year.
  • The 10-year yield is now at 1.633%, and the 5-year has hit 1.2% level for the first time since February 2020.
  • GDP and PCE data is coming out this week, but it is unlikely to alter the Fed’s set out a trajectory.

The European economy and the ECB

  • The bloc’s economy has grown by 2.2% q/q in Q2, as the strict lockdown restrictions were lifted.
    • For Q3, however, the economy is projected to grow at 1.9% q/q as the impact of supply chain disruptions and rising inflationary pressure have softened the outlook.
      • Indeed, manufacturing performance softened to 58.6 while the service sector hit a 6-month low of 54.7.
      • The manufacturing PMI was weakened by the lowest production in 16 months, due to the supply-side constraints and shortages with the auto and parts sector particularly poor.
      • New orders eased, but as expected input prices increased at a record pace which is expected to remain the case.
  • Eurozone inflation was 3.4% y/y in September, the highest level since 2008, and is now expected to reach 4% by the year-end.
  • Inflation expectations have also risen above the inflation target of 2% for the first time since 2014.
  • In the meantime, Germany took another hit in October, as business confidence fell to a 6-months low of 97.7.
    • Supply chain bottlenecks, high energy prices, along with general market softness continue to weigh on economic performance.


  • While the outlook for the US monetary policy trajectory remains more or less known, the ECB is likely to have a more fluid approach to stimulus as the officials gauge the extent of the bloc’s strength.
  • ECB is forecast to begin softening its emergency programme until the complete end in March next year.
    • However, in the next meeting this Thursday, officials are not likely to provide a lot more information on the pandemic emergency stimulus purchases until December.
    • The markets are pricing in a 10bps of ECB tightening within the next year, regardless of the signals from the officials that have pushed back against this.
      • This could be explained by the policy trajectory in the US and England.
    • The forecast for 2023 inflation stands at 1.5%, below their target of 2%.
  • Regardless, ECB is likely to remain dovish in the meantime.

Both economies are likely to see continued moderations in economic growth, buffeted by waves of the delta variant, supply shortages and persistently high inflation. Indeed, the US is projected to have softened by 5.4% in Q3, and this softness is likely to continue into the last quarter, putting additional pressure on the central bank to respond appropriately. The Eurozone is expected to remain broadly unchanged quarter-on-quarter. While economies are in different stages of recovery, both are experiencing turbulence from global factors. In the meantime, we pay attention to economic data, such as GDP and inflation, coming out this week, which is most likely going to be the driving force behind the pair ahead of the central bank meetings. We expect EURUSD to soften further in the coming months as central bank policies start to diverge, and favour selling rallies in EURUSD and building a position. The recent low at 1.1524 is a near term target, before 1.15 but we expect the pair to weaken significantly.

Volatility Commentary

Despite inflation fears and FED-ECB contrasting monetary policy stance, we have been seeing EURUSD volatility constantly realising lower than implied over the last 5 months. Nevertheless, because inflationary pressures are now intensifying as a consequence of supply squeeze and labour shortages, this divergence is likely to weigh down on EUR. Thus, in the near term, we see the potential for a reversal in the EURUSD volatility trend, favouring vols to realise higher than implied and supporting positioning benefitting from EURUSD drifting lower (a stronger Dollar).

EURUSD Trade Idea (3-month)

  • Buy EKI put with 10m USD Notional strike 1.155 and barrier 1.145 for circa 83k USD cost
  • Sell call with 12.5m USD Notional strike 1.17 for circa receive 111k USD
  • Total structure premium receive circa 28k USD

Positioning Charts

USDBRL NDO Positioning Data 12/10/2021 - 19/10/2021

We have seen a significant difference between the two charts below, in the week to 26th of October there are considerably more upside cover as spot has strengthened. The increase in call options with a higher notional shows conviction in the market and the range for call options traded increased W/W from 5.60-5.70 to 5.60-5.90. There are a cluster of options due of expiry in the coming days but superseding that options are due to expire in December.  Put options have been sparsely traded and trade an equally wide range from 5.35-5.55. 

USDBRL NDO Positioning Data 19/10/2021 - 26/10/2021

USDCNY Vanilla Positioning Data 12/10/2021 - 19/10/2021

Options executed in the week of October 26th  show more downside pressure with more put options traded than calls. This is in line with the movement of the spot market as the USD has strengthened. The range for the put options was wider in the week to 26th, at 6-25-6.50. There is very little upside cover at this time but interestingly there are two strips of call options with expiry in April 2022. The strike for these options are 6.70 and 7.10. 

USDCNY Vanilla Positioning Data 19/10/2021 - 26/10/2021

EURUSD Vanilla Positioning Data 26/08/2021 - 26/09/2021

The options market followed spot in the month to 26th October, the put options executed trade a wider range and with larger volumes around 1.10 with higher nationals. As the options with expiry move further away from today, the range is wider, between 1.05-1.30. In the near term, we expect the spot market to weaken, we do not expect much movement through 1.10 in the coming months. 

EURUSD Vanilla Positioning Data 26/09/2021 - 26/10/2021

Charts and Tables

FX Expiries

Volatility Grid

Historical Spot FX Volatility (30D Rolling)

FX Matrix (today)

Weekly Change

Key Events & Releases

Technical Charts 

JP Morgan Global FX Volatility Index 

The trend in recent months has been strong as the index has strengthened, but resistance at 7.01 has held firm prompting a marginal correction to the downside. The stochastics are falling, with the %K/%D seen converging in the oversold, and the MACD diff is negative but lacks the conviction to point out an outlook. In the meantime, moderate downside pressures are supposed to prevail, with the near-term trend support level at 6.9137. A break of this level would bring into play 100 MA at 6.9091, a breach there would confirm the long bearish candle towards 6.84. However, if prices break above 7.01, this could set the index towards 7.10 in the longer term. The indicators point to lower prices in the near term.

The Dollar Index 

The index has improved so far this week and has breached resistance at 93.80 but struggled to grow above this level and now stands at 93.81. The stochastics are falling, and the MACD diff is negative and diverging, suggesting we could see the index push lower in the near term. The index needs to hold above 50 MA at 93.76 before targeting 100 DMA at 93.96 once again. The reaffirmation of near-term support at the moving averages suggests we could see the market push higher. On the downside, rejection above 100 MA could trigger a break of support at 200 MA at 93.66. The moving averages created robust support and resistance levels, and to confirm the indicators, prices need to break support of 50 DMA to confirm the outlook.


The pair has been range-bound in recent sessions, trading between 1.15 and 1.1613. Indeed, the market has struggled to break above the 50 MA level at 1.1625, and so candle bodies shortened, pointing to a lack of appetite out of the current resistance/support. Both the %K/%D stochastics and the MACD converged on the upside, suggesting that we could see the index break back above the 50 moving average, with an upside target of 200 MA at 1.1646 in the near term. On the downside, if support around 1.1582 does not hold, this could trigger losses back through the support of 1.155 and target 1.1525 – this month’s lows. The indicators suggest we could see the pair edge higher in the near term, but a break above the near-term resistance is needed before the trend is confirmed.



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A large number of views are being generated at all times and these may change quickly. Any valuations or underlying assumptions made are solely based upon the author’s market knowledge and experience.

Please contact the author should you require a copy of any previous reports for comparative purposes. Furthermore, the information in this report has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Data in this report has been sourced from Bloomberg unless otherwise stated. All information in this report is obtained from sources believed to be reliable and we make no representation as to its completeness or accuracy.

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