Despite the latest EUR/USD push to recovery highs at 1.1974, the reaction has been tame in the forward-looking FX options market, suggesting traders aren't betting on a sustained EUR/USD rise yet.
Options thrive on volatility and outsized directional moves, using implied volatility to gauge how much and determine premiums.
However, implied volatility remains depressed near pandemic lows, and additional premium for EUR calls over puts (topside versus downside strikes) is also tame.
Benchmark one-month implied volatility is 5.75 versus 5.55 Tuesday.
One-month 25 delta risk reversals are just 0.1 vol premium for EUR calls over puts.
Outright demand for EUR calls, which would benefit from further EUR/USD gains, is also light.
There are multiple daily highs from early to mid March ahead of well-touted 1.2000 option barriers, which could be tough to crack.
More technical resistance lies in the lower to mid 1.20s if they do eventual go nL1N2M70C2.
However, keep an eye on option premium and flows.
Further gains might reinforce any growing topside conviction.
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