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Summary: USDCNH breaks lower and vol trades higher as market is caught short gamma.
Saxo Bank publishes two weekly FX Options Market Update reports covering changes and updates on the FX Options and FX Volatility market. They describe changes in FX volatility levels, risk premium and ideas how to trade based on these.
USDCNH has taken out the 6.82 support after better than expected Industrial production and retail sales. Spot traded sharply down from 6.81 to 6.78 today which has opened up for a move down to 6.70-6.78 area.
Vols spiked higher on the move in spot as market is caught short gamma below 6.80. 1 month up to 5.10 from 4.50 yesterday. Risk reversal has not moved and trades unchanged at 0.65 for USD calls.
6.8200 should now offer good resistance to the topside and selling UDSCNH calls offer good value with vols higher and risk reversal sill bid for topside.
Alternative
Spot ref. 6.7800
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