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Feb 04 - 05:55 AM

EUR/USD - COMMENT-EUR/USD 1.20 Barriers Gone, Options Say Don't Panic

By Richard Pace  —  Feb 04 - 03:39 AM

Price action in this forward-looking EUR/USD derivative is showing no sign of panic, despite EUR/USD now breaking key 1.20 barriers Thursday.

Options thrive on actual volatility - they want it to outperform implied volatility, which is a key determinant of the premium, but implied volatility remains very close to pandemic lows.
One-week expiry trades low 6s and one-month 6.0.
Last week's low was 5.7.

Risk reversals show which side of a market is considered most vulnerable by demanding a premium for option strikes in that direction.
One- to three-month expiries have flipped to their highest EUR put/USD call (downside) premium since June, but gains have faltered.

Overall price action in FX options isn't ruling out further EUR/USD losses, but while implied volatility remains low, it suggests steeper declines are expected to remain a grind.

This offers low premiums for those who want to buy downside protection, while the EUR put risk reversals premium will significantly cheapen EUR put options with an added knock-out barrier below the strike nL1N2K80VO.

Huge expiries are nearby Thursday nL1N2KA0FV.

For more click on FXBUZ

EUR/USD implied volatility Click here

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

Refinitiv IFR Research/Market Commentary


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