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.
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