The recent surge in demand for options that would benefit from EUR/USD gains has increased congestion and is likely to add resistance to any further EUR/USD upside.
EUR calls/USD puts give holders the right to buy EUR/USD at a fixed level on a future date, and the total size of these options increased to 57.49 billion euros last week, according to DTCC data.
That's the highest since early January, and the biggest increase to EUR put options (the right to sell EUR/USD) since December.
Demand for EUR call options looks to be faltering now.
Risk reversals show the premium for EUR calls over puts has retreated below 0.15 for 1- to 3-month expiry contracts, from above 0.25 in mid-May, but can also highlight a market that is overly long of upside options.
There remains a plethora of barrier options that pay out fixed amounts if the barrier strikes are touched/untouched by expiry - they reside every 50-pips from 1.2250, and their related defence will only add to resistance.
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