Synopsis:
SocGen observes a rare and possibly structural change in the EUR/USD options market, where bullish skew has now remained in place for nearly a month—the longest stretch in over 20 years. This persistence suggests a significant shift in market expectations, with investors pricing more volatile and pronounced USD declines relative to gains, calling into question the dollar’s traditional safe-haven role.
Key Points:
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Historical context: Over the past two decades, EUR/USD 3-month risk reversals have typically shown a negative skew, reflecting consistent downside bias for the euro.
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Current shift: For the first time since 2005, EUR calls have remained more expensive than EUR puts for nearly a full month, signaling sustained bullish positioning.
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Implication: The market appears to be adjusting to a new regime, where dollar downside is seen as more disorderly and riskier than upside moves.
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Safe-haven erosion: This reflects a diminished perception of the USD as a reliable hedge during global market stress, potentially elevating the euro’s role in hedging and diversification strategies.
Conclusion:
SocGen flags a potential paradigm shift in FX volatility pricing, as EUR/USD options now reflect prolonged bullish skew for the first time in decades. This may mark the start of a broader transition in how markets perceive USD risk, liquidity preference, and hedging behavior, reinforcing the view that EUR upside and USD downside could dominate the next phase of FX market dynamic.
