The OTC turbulence seems intensifying as the implied volatilities of EUR & GBP are spiking witlessly, while hedging sentiments for certain currency pairs have been losing the traction.

Especially, EURGBP & GBPUSD, with UK referendum & PMIs, ECB's monetary policy decision scheduled for tomorrow but this seems to be already factored in as it was much anticipated move that kept sterling away from much of hedging activities.

But the implied volatilities flashed screaming off as the sterling crosses surged because UK manufacturing PMI prints tad higher than forecasted, 50.1 against forecasts at 49.6.

However, these vols are likely to pick up again in 1-3M expiries speculating on UK referendum that is scheduled on June 23rd.

The above table ranks in rising implied volatility among G10 currency crosses, euro overreacting due to tomorrow's economic event but likely stabilize in coming months. IV and risk reversal readings of EURGBP has been the best buys on the respite from sellers.

The implied volatility of ATM contracts for near month expiries of EURGBP are picking up at more than 18%, a jump from yesterday's 15.7% which is considerably higher for far month option holders.

While delta risk reversals are still flashing up neutral prints that favours bulls and indicates they are willing to pay OTM strikes in higher vols.

Since, IVs of ATM contracts are at higher levels with positive risk reversals would mean that calls have been overpriced relatively to the puts.

During Brexit scenario, at spot FX of EURGBP is trading at 0.7750, and is anticipated to spike up moderately in the weeks to come, so it is better to hedge by going long in far month at the money calls with 50% delta, simultaneously, short 1M (1%) in the money put with positive theta.