Adds Topic codes and RICS

Price action in FX options would suggest that traders of this derivative see a lower risk of a big fall in EUR/USD, but that does not mean that new gains are imminent.

Risk reversals are an option contract that benefit from increased volatility in a particular direction.
They can show how option dealers might perceive the directional risk of a currency pair.
EUR/USD risk reversals have seen their long standing EUR put/USD call volatility premium (the right to sell EUR/USD versus buy it), trending lower.

The benchmark 1-month expiry 25 delta risk reversal premium for EUR puts over calls has halved to 0.425 since mid February and is now just 0.2 above January's one-year lows at 0.225, with a similar decline in the three-month expiry contract.

Dealers also report option users selling EUR/USD downside strikes and broader implied volatility more generally recently, which is reflected in declines along the 1-12-month expiry EUR/USD implied volatility curve.

While this price action fits with EUR/USD holding recent ranges of late, buyers are starting to take advantage of the lower levels.
That fits with a higher risk of actual volatility surrounding the significant U.S. data that can shape the size of the U.S. rate hike expected on March 22.

Related nL1N3591F6nL1N35A0JVnL1N35A0I7

For more click on FXBUZ