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EUR/USD option implied volatility is currently observed to be languishing at levels that are near long-term lows, indicating a general sense of calm in the market and a lack of significant price fluctuations. This situation reflects both recent price movements and a current absence of realized volatility, which is the actual price change observed in the EUR/USD currency pair over a specific period.
Despite this subdued volatility landscape, risk reversals—financial derivatives that measure the difference in implied volatility between call and put options—are still showing a preference for EUR call options over put options. This means that market participants are willing to pay a premium for calls, suggesting they perceive a higher probability of EUR/USD appreciation compared to depreciation.
The current market sentiment implies that traders believe there is a greater risk of the EUR/USD moving upwards rather than downwards. However, the currency pair is in a state of anticipation, with investors awaiting a catalyst to spur movement. Potential catalysts include the release of more disappointing economic data or a decision by the Federal Reserve to implement a significant interest rate cut of 50 basis points. Such developments could alter the balance of risk and potentially drive the EUR/USD price action in either direction.
The cash hedging of soon-to-expire FX options may enhance nearby support and resistance levels, potentially creating a pull on FX price movements around each day's 10 a.m. New York (1400 GMT) cut-off. Therefore, it's beneficial to be aware of the locations of the larger strikes in advance.
Day & Date Strike(s) Notional
(EUR)
Monday, Sept 15 1.1650 1.0 Bln
1.1675 395 Mln
1.1690–1.1700 2.7 Bln
1.1720 471 Mln
1.1735 308 Mln
1.1750 712 Mln
1.1800 755 Mln
Tuesday, Sept 16 1.1700–1.1715 3.0 Bln
1.1750–1.1760 2.8 Bln
1.1800–1.1805 2.5 Bln
Wednesday, Sept 17 1.1650 813 Mln
1.1700 1.0 Bln
1.1715–1.1725 1.3 Bln
1.1800 504 Mln
Thursday, Sept 18 1.1670 2.2 Bln
1.1700 3.7 Bln
1.1715–1.1720 1.2 Bln
1.1800–1.1805 2.5 Bln
Friday, Sept 19 1.1650–1.1655 1.7 Bln
1.1675–1.1680 1.3 Bln
1.1700 1.0 Bln
1.1750 2.2 Bln
1.1800 2.2 Bln
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!