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Aug 28 - 08:55 AM

EUR/USD - COMMENT-EUR/USD Derivatives Flag Increased 1.2000 Barrier Risk

By Richard Pace  —  Aug 28 - 06:35 AM

EUR/USD option premiums fell after U.S Federal Reserve Chairman Jerome Powell's speech left spot in its recent range, but they are back in demand and continued gains will warn of increased risk of further spot gains and a potential breach of the key 1.2000 barrier level nL1N2FU07X.

Implied volatility gauges future volatility expectations and determines option premiums - very short-dated contracts benefited from the initial bout of post-Powell spot volatility, but the entire one- to 12-month curve fell as spot settled.

After a drop from 8.5 to 7.2, one-week implied volatility has recovered all of those losses early Friday, while the benchmark one-month expiry contract trades 7.6, after falling from 7.5 to 7.1 post-Powell (lows since July).

Traders also report fresh demand for options with strikes above 1.20 and expiries less than one-month, which would benefit from further spot gains, especially above 1.2000.

Risk reversals show implied volatility premium for EUR calls over puts (the right to buy EUR/USD versus sell it on a future date) are adding renewed premium, too.

For more click on FXBUZ











1-week and 1-month EUR/USD implied volatility Click here

1-3-12-month EUR/USD risk reversals Click here

Source:
Refinitiv IFR Research/Market Commentary

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