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Euro/Dollar Risk Reversals Spin To Euro Puts

08 Jul 2001

Euro/dollar one-month risk reversals last week continued to flip in favor of euro puts/dollar calls as the euro slid further against the dollar in the spot market. The market showed a 0.4 bias in favor of 25-delta euro puts/dollar calls on Thursday from 0.2 in favor of euro calls/dollar puts eight days before. At the same time the euro fell to USD0.8375 from USD0.8622.

Craig Puffenberger, managing director and global head of foreign exchange trading at Credit Suisse First Boston in New York, said traders were buying euro puts/dollar calls with USD0.84-USD0.82 strikes and maturities from one week to one month in expectation of further depreciation against the greenback. He added the demand for the puts came from both hedgers, such as corporates, and banks' proprietary desks. One-month implied volatility remained at approximately 10%.

The dollar is at a 15-year high against the seven other most important currencies on the Federal Reserve's trade weighted index. "The dollar is bashing everything," according to David Bloom, foreign exchange strategist at HSBC in London. The last 16 economic indicators to come out of the U.S. have all been better than the market had predicted. Bloom added economists predicted slower U.S. growth than has materialized and continued that the dollar is strengthening, as this trend becomes apparent.


08 Jul 2001