EUR/USD: Put premium drops sharply on ECB QE exit talk, Italy relief

Risk reversals show a sharp drop in demand for the EUR put options.
EUR/USD found acceptance above 1.17 on ECB QE exit talk and EU-positive comments from Italy's Conte.
Focus on US unit labor cost reading.

Omkar Godbole FXStreet Contributor

The EUR/USD closed above 1.17 yesterday on news the European Central Bank (ECB) will debate QE exit at next week's meeting in Latvia.

The uptick in EUR/USD could also be associated with Italy PM Conte saying his country has no plans to leave the Euro.

As of writing, the pair is trading at 1.1725. The corrective rally from the low of 1.1510 could be extended further as the ECB QE exit talk and Italy relief seems to have triggered an unwinding of EUR bearish bets (hedges) initiated last week.

For instance, the one month 25 delta risk reversals have jumped to -0.625 - the highest level since April 24 vs -0.625 on Tuesday. The uptick indicates falling EUR put premium or falling demand for EUR put options (bearish bets)

The demand for the EUR puts may drop further if US reports (at 12:30 GMT) a weaker-than-expected first quarter unit labor cost reading. Markets expect the data to show the total cost of employing labor force rose to 2.8 percent in Q1 vs 2.7 percent in Q4.

A below-forecast reading would push Treasury yields lower, leading to a rally in the EUR/USD. Meanwhile, an above-forecast print would boost the odds of faster Fed rate hikes and hence will likely hurt the EUR/USD pair.

EUR/USD Technical Levels

Resistance: 1.1744 (June 4 high), 1.1822 (May 9 low), 1.1855 (38.2% Fib R of Apr-May drop).

Support: 1.1698 (5-day moving average), 1.1652 (June 5 low), 1.1618 (june 1 low).

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bullish	Neutral	Low
1H	Bullish	Overbought	Expanding
4H	Bullish	Neutral	Shrinking
1D	Bullish	Neutral	Shrinking
1W	Bearish	Oversold	Expanding
Updated Jun 6, 03:45 GMT

Author

Omkar Godbole

FXStreet Contributor

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

GBP/USD trims losses, approaches 1.3500

GBP/USD adds to the multi-day negative streak, although it has managed to bounce off earlier four-week lows near 1.3470 on Wednesday. Meanwhile, Cable’s deep correction comes despite the tepid performance in the Greenback and the persistent geopolitical concerns.

EUR/USD slips back toward 1.1580 on USD recovery

EUR/USD comes under some pressure and revisits the 1.1580 region as the NA session draws to a close on Wednesday. That said, spot adds to Tuesday’s bearish performance while the Greenback is slowly gathering steam and leaving behind earlier lows.

Gold keeps the recovery in place; focus is back to $4,400

Gold continues to regain ground lost and sets its target on the $4,400 mark per troy ounce on Wednesday. The yellow metal’s rebound comes amid modest losses in the US Dollar, steady geopolitical uncertainty and mixed US Treasury yields.

Crypto Today: Bitcoin, Ethereum, XRP edge lower as renewed US-Iran tensions weigh

The cryptocurrency market is pulling back broadly on Wednesday as investors adopt a cautious stance, with Bitcoin (BTC) consolidating near its short-term support at $77,000. Ethereum (ETH) remains under pressure, slipping toward $2,400. Ripple (XRP) is also trending lower, approaching its $1.32 support after two consecutive days of losses.

BoC recap: Risks are shifting as Oil prices and US trade actions complicate outlook

The Bank of Canada (BoC) left its overnight interest rate unchanged at 2.25% on Wednesday, as widely anticipated, but delivered a more cautious message as inflation risks increased and the recovery became harder to assess.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.