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Dollar/Yen Volatilities Fall;Stocks Up On Fed Cut

Tuesday, January 22, 2008

Forex Options:Dollar/Yen Volatilities Fall;Stocks Up On Fed Cut

1 Month Option Implied Volatilities At 0300 GMT
Tokyo Today New York Tokyo
Tuesday Tuesday
Dollar/Yen 13.90%/14.55% 14.30%/14.60 16.50%/16.70%
Euro/Dollar 9.70%/10.00% 9.80%/10.20% 10.50%/10.80%
Euro/Yen 15.60%/16.6% 16.20%/16.70% 17.20%/18.0%

3 Month Option Implied Volatilities
Dollar/Yen 12.5%/13.10 12.60%/13.30% 15.20%/16.00%

The volatilities used are over-the-counter, at-the-money rates.

1-month 25 delta risk-reversals favor: yen call/dollar puts by 3.20%/4.00%, compared with 3.40%/3.90% in New York yesterday.

TOKYO (Dow Jones)--Dollar/yen currency options fell a tad in Tokyo on Wednesday as Japanese stock markets rebounded after an emergency 75 basis-point cut by the U.S. Federal reserve helped calm financial markets and pushed Asian stock markets higher.

The greenback temporarily rose to Y107.38 against the Japanese currency in the spot market, compared with Y106.66 late in New York, on expectations the Nikkei 225 Stock Average would recover and global stock markets would follow suit after the U.S. interest rate cut.

But looking ahead, the price of one-month at-the-money dollar/yen options, as measured by implied volatilities may not fall much as underlying fears over the global impact from a possible U.S. economic slowdown remain unchanged, an options trader said.

"The initial reaction was a decline in volatilities because the dollar rose and stocks were up, but this may not last very long," he said.

"The sense of uncertainty over the economic outlook is still strong, despite the Fed's action," he added, noting that many players think the greenback could fall below Y105.

Players also expect continued choppiness in the U.S. unit for now because while the Fed's easing may have helped alleviate market fears, weakness in the U.S. economy won't be resolved straight away.

"It will take awhile before the rate cut's impact on the economy will be reflected in indicator data and until then, we are still likely to see some weaker numbers," which may mean further losses for the dollar, said a trader.

Reflecting such sentiment, volatilities have fallen more steeply at the longer end, suggesting that players think the U.S. currency may remain volatile for now but is likely to settle in the longer run, the options trader said.

Options traders noted no significant deals in the Tokyo session so far.

Posted by MOHAMED SAID at 9:20 PM  


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