FX options are forward looking and thrive on FX volatility, so their price action and flows can provide a barometer of sentiment and expectations in a given currency pair, such as EUR/USD.
Implied volatility is a dealer's best guess of future volatility and a key determinant of option premium - if actual volatility matches implied over the life of the option, it will cover the premium.
Implied volatility is near pandemic lows, consistent with low actual volatility and low risk of spot breaking out of well-worn ranges.
Risk reversals reinforce this outlook - they highlight any additional volatility premium in a particular direction, and although there's still a premium for EUR calls over puts (upside versus downside strikes), it is tiny.
Investors were keen buyers of upside protection in mid-late May, but they only added to congestion and resistance nL2N2NB0HR.
However, there's been little interest so far in covering the risk of EUR/USD falling through 1.2000.
Short term focus is on Thursday's U.S. CPI and European Central Bank policy announcement, and also June 16's U.S. Federal Reserve policy announcement.
Implied volatility expiring just after these events is higher than its fair value measures (historic volatility), so dealers aren't complacent about related short term volatility risk, but it's hardly excessive nL2N2NL0RT.
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