Euro/dollar risk reversals continued to favor euro calls/dollar puts last week, but interest in the risk reversal dropped last week as investors who were long euro calls took profits. Traders said the 25-delta risk reversal fell to 0.45% Thursday from 0.9% earlier in the week and implied volatility stayed in a range from 10.2-10.6%.
One trader explained that as euro/dollar spot steadily rose to USD1.09 early last week from USD1.05 in previous weeks, implied volatility did not increase substantially, so interest in putting on euro call/dollar put trades dropped and many took profits. Early in the week, spot fell to USD1.08, then regained losses back up to USD1.0935, diving back to USD1.0835 on Wednesday.
Ian Stannard, foreign exchange analyst at BNP Paribas in London, said the currency pair is in a downward corrective phase spurred by news that a new United Nations resolution may be delayed, despite U.S. Secretary of State Colin Powell's presentation to the U.N. Security Council last week. "The real reaction to the presentation is yet to be seen because of behind-the-scenes negotiation," Stannard said, explaining that after the presentation from weapons inspectors on Feb. 14, trading of the currency pair will take a clearer direction.
Euro/Dollar Spot & 25-Delta Risk Reversal