EUR/USD retraces 50% of the recent sell-off, IVs pick up, what's next?


The EUR/USD pair rose for fourth straight day on Wednesday and almost touched 1.1881 (50% Fib R of 1.2092-1.1669).

The uptick in the EUR gathered pace as Catalan fears eased. The broad based USD weakness following the less hawkish Fed minutes only added to the positive tone around the EUR/USD pair.

Highest EUR call bias across the curve since 2009

  • As per Reuters report, risk reversals reflect their highest EUR call bias across the curve since 2009. Three-month and 1-year risk reversals show highest EUR call bias since 2009 at 0.5 and 0.15. The one-month 25-delta risk reversals jumped to 0.5 on Wednesday.

  • Meanwhile, the one-month ATM option volatility jumped to 7.375 from the recent low of 6.9.

Reuters report also says the options market is short of strikes above 1.2000. Thus, a break above the psychological level could accelerate gains as sellers would be forced to unwind their shorts.

Focus on yield spread

The US-German 10-year yield spread narrowed to 188 basis points yesterday from 190 basis points, which validates the EUR rally.

The spread may narrow further if the US PPI (due at 12:30 GMT) disappoints expectations. The yield spread may also move following the speeches from Fed's Brainard and Powell and ECB's Draghi and Praet.

Widening of the yield spread would lift the US dollar and vice versa.

EUR/USD Technical Outlook

FXStreet Chief Analyst Valeria Bednarik writes, "from a technical point of view, the pair presents a positive tone ahead of the Asian opening, as in the 4 hours chart, the price has managed to advance further above its 20 and 100 SMAs, with the shortest gaining upward strength below the largest, which anyway maintains a bearish slope. Technical indicators in the mentioned chart had lost upward strength, but hold near overbought readings, in line with further gains ahead, as long as pullbacks are contained around 1.1820/30, a major static support now after the pair recovered the level earlier this Wednesday. To the upside, sellers have surged on approaches to the 1.1900 figure, which means that an advance beyond the level should lead to a continued advance, up to 1.1965.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

Latest Forex News

Editors’ Picks

EUR/USD flirts with 34-month lows amid after poor German figures, amid coronavirus fears

EUR/USD is trading just above 1.0820, the lowest since 2017, as the coronavirus outbreak is taking its economic toll on Apple among others. The German ZEW Economic Sentiment missed expectations with 8.7 points.

EUR/USD News

GBP/USD remains depressed below 1.30 as UK jobs figures miss expectations

GBP/USD is trading below 1.30 after UK wages decelerated to 2.9% yearly in December, worse than expected. Brexit concerns are also weighing and coronavirus headlines are eyed.

GBP/USD News

Forex Today: Coronavirus takes a bite from the apple, Gold gains, Bitcoin bounces

The coronavirus outbreak's economic impact is growing as Apple, the iPhone maker has issued a warning that it is unable to meet its guidance due to production and issues and closed stores in China. The tech giant's announcement has been weighing on the market mood, pushing gold and the yen higher. 

Read more

Gold: Positive beyond six-week-old falling trendline

Gold prices take the bids above $1585, +0.35%, during the pre-European trading on Tuesday. The yellow metal recently broke a downward sloping trend line stretched from January 08. Early-month top on the buyer’s radar.

Gold News

FXStreet launches Real-Time Trading Signals

FXStreet Signals offers access to explanatory live webinars, real-time notifications when signals are triggered and exclusive membership to the company’s Telegram group, where users get direct guidance by our analysts and get room to discuss and interact.

More info

Forex MAJORS

Cryptocurrencies

Signatures