EUR/USD Risk Reversals Shift Towards Bullish Sentiment
EUR/USD is showing signs of increased bullish sentiment according to FX option risk reversals. These contracts charge a volatility premium for strikes in one direction versus the other, and their pricing can offer clues on perceived directional risks in a currency pair.
A recent shift has been observed in benchmark 1-month expiry EUR/USD 25 delta risk reversals. The contract has lost its downside over topside strike premium for the first time since February.
This development suggests that pricing is tilting towards gains for EUR/USD, although it has yet to adopt a topside strike premium. According to Richard Pace, a Reuters market analyst, 'it's a volatility play', but the shift in risk reversals is still an important indicator of market sentiment.