EUR/USD: Put bias strongest since May 31 after ECB's dovish taper

  • Euro nosedived 300 pips on Thursday after ECB delivered a dovish taper.
  • Risk reversals hit lowest since May 31, signaling a rising demand for EUR puts.

The EUR/USD fell from 1.1852 to 1.1562 on Thursday and extended losses to 1.1555 in Asian session today as ECB's Draghi announced a QE taper but put off its next major decision (interest rate hike) until well into 2019.

The sell-off in the EUR / USD spot has pushed up demand for EUR puts (bearish bets). The one-month 25 delta risk reversals (EUR1MRR) fell to -0.825 - the lowest level since May 31. The gauge stood at -0.70 a day ago, and at -0.225 on June 7.

The drop to a two-week low of -0.825 represents rising implied volatility premium (rising demand) for EUR puts. Clearly, investors fear the single currency could extend the drop further and hence are seeking downside protection.  


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