EUR/USD - risk reversals hit 6-month high

The EUR/USD 1-month 25 delta risk reversals gauge rose to a 6-month high of 0.575 yesterday, indicating rising demand for EUR calls.

The EUR/USD rose to a 3-year high of 1.2323 in Asia yesterday before the rally came to an abrupt end. The spot fell to 1.2177 yesterday. The bearish outside day candle indicates an increased risk of a deeper correction to 1.2092 -- 38.2% retrace of the 1.1718 to 1.2323 (December to January) rise.

However, the uptick in the risk reversals shows investors expect EUR/USD to make a quick recovery from the technical pullback. Only a close below 1.20 could revive the demand for the EUR puts.

Risk reversals