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Risk-Reversals Rise in EURUSD
If the latest movements in the options market is anything to go by, EURUSD is at significant risk of reversal lower next week. One-week risk reversals in the Euro have hit their highest level since July ahead of the ECB meeting next week. The initial thinking, that the Fed would cut rates at a faster pace than the ECB, now looks in jeopardy on the back of yesterday’s FOMC minutes and the September jobs report last week.
Fading Fed Easing Forecasts
While expectations for more aggressive ECB easing have risen in recent weeks in line with weakening eurozone data, Fed easing expectations have been dialled back. Indeed, looking at the options data, there has been a big surge in demand for euro puts on the back of Friday’s jobs data.
US Inflation Next
Looking ahead, this current dynamic could be further amplified if we see any upside surprise in today’s US inflation data. Any stickiness or fresh increase in CPI will surely see Fed easing expectations scaled back further, leaving EUR more exposed to downside bets into next week’s ECB meeting. With retail sentiment currently just shy of 90% long, there is plenty of room for EURUSD to push deeper here.
Technical Views
EURUSD
The previously highlighted double top formation is now playing out with the pair breaking below the neckline. The market is now testing the 1.0937 support and retesting the broken bear trend line. This is a key pivot for the market which, if broken, opens the way for a deeper move down to 1.0724 next.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.