- EUR/USD's failure to scale 1.18 in a convincing manner seems to have revived demand for the EUR puts.
- An above-forecast US CPI reading could put a bid under the USD ahead of tomorrow's FOMC rate decision.
The EUR/USD turned higher from 1.1510 on May 29, but the ensuing rally seems to have run out of steam in the 1.1840 neighborhood.
The back-to-back hammer candles as seen in the daily chart also convey a similar message.
The bullish exhaustion seems to have revived interest in the EUR puts. Currently, the one month 25 delta risk reversals are being paid at 0.575 EUR puts vs. 0.275 EUR puts on June 7.
The rise in the implied volatility premium from 0.275 to 0.575 could be an indication the corrective rally in EUR/USD has ended and investors are preparing (buying puts) for a fresh sell-off in the single currency.
The fears could come true if the US consumer price index (CPI) for May, due today at 12:30 GMT, beats estimates of a 0.2 percent month-on-month rise. Moreover, an above-forecast headline and core CPI reading could embolden hawks at the Fed. The USD may also pick up a strong bid if the historic Trump-Kim Summit ends on a positive note.
On the other hand, a combination of a better-than-expected German Zew survey reading and a below-forecast CPI will likely push the EUR/USD above 1.18 in a convincing manner.
EUR/USD Technical Levels
Resistance: 1.18 (psychological hurdle), 1.1840 (June 7 high), 1.1855 (38.2% Fib R of April-May drop).
Support: 1.1731 (10-day moving average), 1.1676 (May 23 low), 1.1618 (June 1 low).
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