Monday, February 19, 2018
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EUR/USD – Put bias strengthens, focus on EUR/JPY
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  • EUR/USD risk reversals have dropped to the lowest since May. 31.
  • Vols at the highest level since April.

The two-day decline in the EUR/USD (from 1.2518 to 1.2362) has revived demand for the EUR puts, show risk reversals.

Risk reversals (EUR1MRR) and ATM Vols (EUR1MO)

The one-month 25-delta risk reversals were paid at 0.325 EUR puts yesterday (i.e. -0.325 reading) compared to 0.06 EUR calls on Friday and 0.575 EUR calls on Jan. 17. The slide indicates increased demand for the bearish bets (put) on the common currency.

Also, the one-month at the money option volatility gauge jumped to 9.00 in Asia – the highest level since April.

The combination of rising demand for EUR puts and jump in volatility indicates the dealers are expecting a further drop in the EUR/USD pair.

Focus on EUR/JPY

Currently, UK’s FTSE futures are down 2 percent. Meanwhile, Germany’s DAX and France’s CAC futures have lost 2.4 percent and 4.4 percent, respectively. Further, the S&P 500 futures are down 2%. So the Japanese Yen may continue to inch higher. The resulting drop in EUR/JPY could weigh over the EUR/USD pair.

EUR/USD Technical Levels

The spot traded in a sideways manner at 1.2370 in Asia. A break below 1.2335 (Jan. 30 low) would open doors in 1.2297 (support on a 4 – hour), under which a major support is seen at 1.2147 (4-hour 200-MA). On the higher side, breach of resistance at 1.2431 (4-hour 10-MA) would expose 1.25 (psychological level) and 1.2523 (Feb. 1 high).

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