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.

Omkar Godbole FXStreet Contributor

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.

EUR1MRR

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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