Price action in FX options is consistent with a consolidation period in EUR/USD, after the rapid gains to two-year highs above 1.1900.
The EUR/USD rally fuelled demand for options and raised their cost, but demand and prices peaked last Thursday as profits were booked, hinting that a top is in place for now nL1N2F80Q3
Option market implied volatility gauges future volatility and is a key parameter in the cost of the underlying option - the benchmark one-month contract peaked at 8.6 last week from 6.1 in mid-July and has dropped back to 7.6 since.
One-year implied volatility is now 7.6 after recent gains from 7.0 to 8.0.
Risk reversals show the implied volatility premium for EUR calls over puts (EUR/USD topside) has retreated to 0.6 from multi-year highs at 0.85, excluding the early March panic pricing.
Consolidation/setback is healthy for the uptrend, which can eventually resume nL1N2F80AA.
Three billion 1.1800 vanilla options expire today, which - can influence price action/add resistance nL1N2FC03WFor more click on FXBUZ