BUZZ-COMMENT-Directional EUR/USD clues from the FX options market

Aug 24 (Reuters)By their forward-looking nature, FX options pricing, flows, and positioning can offer an insight into expectations for EUR/USD. Lately, investors have been buying options that would benefit from more EUR/USD gains over coming months, looking for an eventual break of huge barriers at 1.2000.

Risk reversals show this strong lean. Dealers hiked prices for EUR calls over puts – the right to buy EUR/USD versus sell it on a future date.

Ignoring the early March panic pricing, the EUR call over put premium reached multi-year highs in August, and while it remains intact, shows dealers haven’t changed their view of further EUR/USD gains.

However, one-month expiry risk reversals have dropped back to 0.4 from 0.85 premium for EUR calls over puts, so the near-term risk of more EUR/USD gains is perceived to be faltering for now. Setbacks in three- to 12-month contracts are more limited, and at 0.6 vols, above where they were pre-crisis, leaving the medium/longer term view of more EUR/USD gains intact.

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1-3-12-month EUR/USD risk reversalshttps://tmsnrt.rs/31kMEFx

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

((Richard.Pace@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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