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Jan 27 - 06:55 AM

EUR/USD - COMMENT-EUR/USD Traders Should Watch FX Option Flows For Clues

By Richard Pace  —  Jan 27 - 05:09 AM

By their forward-looking nature, FX options can offer clues on the outlook for a currency pair, and there's been a clear shift in EUR/USD pricing and flows since the start of 2021.

Spot and option traders were hoping EUR/USD was mimicking price action from the turn of 2018-19 when it breached 1.20 and then 1.2500, but the 2021 rally stalled at 1.2349 and has been consolidating since.

EUR/USD option premiums have fallen in 2021 - implied volatility to crisis lows - and its additional premium for EUR call over put (topside) options has been erased in one- and two-month expiries.

The premium reduction comes amid a less-bullish EUR/USD outlook, which has seen more traders paring EUR call (topside) positions that would have benefited from a continued EUR/USD rally.
There's hasn't been much demand for options that would benefit from a break below 1.2000 barriers as yet.

Price action suggests dwindling conviction for volatility or directional moves at present, and even tonight's Federal Reserve policy announcement is failing to inspire nL8N2K173U.

For more click on FXBUZ

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

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

Refinitiv IFR Research/Market Commentary


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