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2025-09-16 21:43:22
[Dollar Pullback Ignites Volatility Rally: Options Market Emerges New Trading Signals] ⑴ The recent weakening of the US dollar has caused implied volatility in FX options to rebound from long-term lows, heightening market concerns about a potential breakout. Demand has increased significantly for short-dated EUR/USD and GBP/USD options, in particular, suggesting traders may be underestimating their upside potential. ⑵ EUR/USD risk reversals have historically tilted bearish, but with the recent decline in the US dollar, implied volatility has also risen. For example, a typical €30 million options trade saw implied volatility for the one-month contract rise from 6.5% to 7.05%, an increase of over €15,000 in premium. ⑶ Despite continued pressure on the British pound from UK fiscal uncertainty, risk reversals in GBP/USD have yet to see the rare bullish call premium. However, GBP/USD recently broke through a key Fibonacci level, putting it on track to challenge the three-year high of 1.3787 set in July, pushing one-month implied volatility to 6.8% from last week's low of nearly 6.0%. (4) The AUD/USD pair has broken through its 2025 high, targeting the 0.6700 mark this week. A successful breakout could trigger a new rally and further boost volatility demand. Market expectations for an upward breakout are beginning to bear fruit. (5) The US monetary policy decision, due on Wednesday (Beijing time), is expected to maintain market uncertainty, supporting implied volatility. A dovish outcome, such as a 50 basis point rate cut, as expected by some banks, could be a catalyst for a broad recovery in volatility.
