EUR/USD: Off 11-week highs, but risk reversals show greater bias for strong EUR

The American Dollar is recovering ground on President Trump’s decision to cancel the tariff plan on Mexican goods.
The pullback in EUR/USD could be short-lived with risk reversals reporting the strongest demand for call options in 16 months.

Omkar Godbole FXStreet Contributor

EUR/USD has pulled back to 1.1310 from Friday’s 11-week high of 1.1348, but the path of least resistance is still on the higher side, according to risk reversals.

The pair came under pressure in the Asian session with the US Dollar witnessing a broad-based recovery, possibly due to the decision by the US President Trump to suspend tariff plan on Mexican goods.

The pullback, however, could be short-lived as both the options market data and technical charts show greater bias for strong EUR.

The one-month 25 delta risk reversals on EUR/USD, the gauge of calls to puts on the common currency, is currently seen at 0.30 - the highest level since Jan. 23, 2018.

The positive number indicates the demand or the implied volatility premium for call options (bullish bets) is higher than that for put options (bearish bets).

So, it seems safe to say that the bullish bias on the EUR is currently at the strongest in 16 months.

Further, the pair closed above the April 17 high of 1.1324 on Friday, invalidating the most basic of all bearish patterns - the lower highs and lower lows. Friday’s close also reinforced the bullish view put forward by the descending triangle and double bottom breakout, as discussed in early Asia.

The shared currency, however, may not see big moves today, as German, French, and Swiss markets are closed on account of Whit Monday holiday.

Pivot levels

1. R3 1.1469
2. R2 1.1409
3. R1 1.1372
PP 1.1311
1. S1 1.1274
2. S2 1.1214
3. S3 1.1177

One-month risk reversals

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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