Another day of range trading around $1.0500 was clearly pre-empted by EUR/USD options, with implied volatility sold in early London.

Overnight expiry sold 11.5-10.5, 1-week at 9.5 and 1-month to 8.15, having peaked 8.8 on Tuesday, indicating that an impending no-confidence vote in the French government is unlikely to significantly impact the EUR in the near term.

A fall in sales of EUR/GBP implied volatility to their lowest levels since September come as little surprise, given the minimal realised volatility—1-week daily historic volatility stands at just 0.88.

In contrast, USD/JPY has seen notable intraday movements, which continue to support implied volatility, particularly for expiries covering the mid-December U.S. Federal Reserve and Bank of Japan policy decisions. Risk reversals maintain a strong premium for downside strikes, though this remains below recent peaks.

Meanwhile, South Korea's Won recovers from Tuesday's sharp decline and its front-month expiry implied volatility has eased from new recent highs. However, risk is still simmering in USD/KRW, enough to keep risk reversals at 2-year highs for KRW puts over calls, for the time being.

Higher 1-week expiry AUD/USD option implied volatility recognises the heightened realised volatility risk from any rate timing rhetoric at Tuesday's RBA policy announcement following weak GDP data.

For more click on

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(Richard Pace is a Reuters market analyst. The views expressed are his own)

((Richard.Pace@Thomsonreuters.com))