• FX option risk reversal contracts are an FX volatility strategy, but their pricing reveals directional sentiment

• Price action in risk reversals shows the FX direction expected to increase volatility - often the most vulnerable side

• Benchmark 1-month 25 delta EUR/USD risk reversals went from a neutral bias to 0.25 EUR puts over calls since Friday

• Hawkish Warsh comments at Jackson Hole are driving this shift in EUR/USD risk premium from upside to downside

• Recall, 1-month risk reversals flipped from downside to topside strikes in mid August for the first time since February

• Building on this fresh downside skew would confirm bearish momentum is regaining control of EUR/USD sentiment

• Related - Finding value in FX options for NFP, CPI and the Fed

• Related - EUR/USD boxed in by techs and huge option hedging before NFP
EUR/USD 25 delta risk reversals

(Richard Pace is a Reuters market analyst. The views expressed are his own)