One-month Japanese yen/U.S. dollar implied volatility fell to 9.75% Thursday, down from 10.25% a week earlier, as demand for yen puts/dollar calls increased as the dollar continued to remain strong despite anthrax scares across the U.S. Hedge funds and investment banks were the most active, buying one-week yen puts/dollars calls as the one-month 25-delta risk reversal moved further in favor of yen puts. The options typically had strikes around JPY119.75 when spot was trading around JPY121.20.
U.S. traders reported an increase in two-way action last week as the foreign exchange market saw fluctuations as a result of anthrax scares. "It seems like the dollar weakened almost immediately when any bad news broke about anthrax scares. But then it quickly recovered to a level above where it started from," said one trader. He added that across all times zones yen puts/dollar calls were the most heavily traded options.
"The bottom line is the dollar has remained very strong amid the backdrop of a very uncertain environment that has been compounded this week by these anthrax virus scares pushing the dollar down and the Fed being wildly accommodating keep it up," said Robert Podorefsky, chief strategist at FleetBoston Financial. Podorefsky predicted the dollar will remain strong over the next three months.
USD/JPY Spot & One-Month Implied Volatility
Source: J.P. Morgan Chase Charisma@chase.com
