EUR/USD has been shackled to a 1.1600-1.2000 range since July and option market price action suggests minimal risk of any near-term breakout nL1N2I30EI, but options are leaning higher in the medium to longer term, giving hope to bulls.
FX option trade flows show plenty of interest to position for a higher EUR/USD through 2021.
Three- and six-month expiry EUR call options with strikes between 1.2000-1.2600 have seen steady demand.
They allow holders to buy EUR/USD at the strike price at expiry, but will increase in value as EUR/USD rises, as long as there is still plenty of time before expiry.
Pricing also reflect the higher likelihood of EUR/USD to gain over time.
Risk reversals are options that allow the holder to benefit from a spot move in a particular direction.
Near-dated expiries only hold a tiny EUR call (topside) vol premium (the most likely perceived direction of travel), but it's higher on longer-dated maturities.
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1-3-12-month EUR/USD risk reversals Click here