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Nov 13 - 08:55 AM

EUR/USD - COMMENT-EUR/USD Outlook Clues From The FX Options Market

By Richard Pace  —  Nov 13 - 07:15 AM

Forward-looking FX options aren't betting on a EUR/USD directional move or increased volatility near term, but they are still leaning toward an eventual move higher.

Implied volatility gauges actual volatility expectations over a given period and determines the option premium.
It's currently trading at or near to its lowest levels since March, across the entire one- to 12-month curve.

Risk reversals show how much implied volatility premium dealers are adding for option strikes in one direction or another.
Benchmark one-month 25 delta risk reversals saw that premium fall from 0.35 EUR calls to 0.2 EUR puts pre-U.S election, recover and settle at 0.1 EUR calls since.
EUR calls are options that allow owners to buy EUR/USD on a future data, EUR puts to sell.
That EUR call over put premium is higher in longer-dated maturities.

Light trading is indicative of a lack of participation, and inspiration, but a constant theme has been to buy options expiring in three to six months that would benefit from a EUR/USD rise toward 1.2500.
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1-3-12-month EUR/USD risk reversals Click here

1-3-12-month EUR/USD implied volatility Click here

Source:
Refinitiv IFR Research/Market Commentary

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