FXStreet (Bali) - Australian CPI inflation numbers came lower across the board, taking the market certainly by surprise. Short volatility option market to worsen AUD pain The AUD/USD marked fell by over 60 pips immediately, with risks of bearish follow through significantly increased, not only judging by the divergence between what was expected and what the numbers show (increases chances of RBA easing in November), but also by the current options market positioning, which has been in 'selling volatility' mode since mid-September, suggesting that breaks of key levels (0.7165/0.72) risks being directional. Background on short volatility risks When option players sell volatility, most of the daily activity orbits around selling puts and calls (unlimited risk), as market makers and other participants aim to suppress the gap between implied volatility and historical. When the former is above the latter, as has been the case in the AUD/USD market since early Sept, the breakout of key support and resistance levels carries the risk of being directional in nature, as option players (short call/puts) must cover their unlimited risk exposure by going in the direction of the key breakout, as they fail to keep the underlying spot market within limited brackets. Bearish directional risk in play In the case of AUD/USD, 0.7170/0.72 daily point of control had been fiercefully defended, but the decisive breakout below suggests that the need to short this market by option players, rather than buy dips (that would be gamma scalping), is now in play, and carries the risk of seeing a directional move, at least until 0.71 round number is met, as that would be well below today's ATR 14 limit down. Below this level, and given the conditions just defined in AUD/USD options market, an attack towards 0.70 round number might be the next target for bears. Market is expected to have a hard time breaking lower though, as market is quite sticky below, according to data released by Deutsche Bank options positioning. For more information, read our latest forex news.