FX option implied volatility is back at the long-term lows seen before the March 22 Chinese yuan slump, but there are a few exceptions that highlight perceived volatility risks ahead.

USD/CNH 1-month expiry implied volatility spiked from 2.5 to 4.75 on March 22 but has met demand on its reversion to 3.3. One-month risk reversals flipped from a USD put, to a USD call premium that day, which remains intact to reflect the risk of more USD/CNH gains.

The firmer EUR put/USD call risk reversal premium highlighted the downside risk to EUR/USD spot which consequently prompted demand for 1-month implied volatility from 4.9 when it broke below 1.0800 on Thursday. Trade flows show potential for 1.0600 over time.

The BoJ may take advantage of Easter holiday thinned markets to intervene in support of the JPY, especially if Friday's Japanese and U.S. data goes against USD/JPY. That's keeping JPY related implied volatility elevated, along with the threat of short topside USD/JPY gamma above 152.00 barriers - some of which expire next week.

The recent broad based gains in historic/realised volatility have seen a convergence with implied volatility and show the potential value of long option positions.

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

((Richard.Pace@Thomsonreuters.com))