Forex Flash: EUR/USD risk reversals – back to the future? - Societe Generale
Forex pairs in this Article »
EUR/USD
FXstreet.com (Barcelona) - Kit Juckes, Global Head of Currency Strategy at Societe Generale notes that EURUSD risk reversals with expiries up to 1m flipped into positive territory last week for the first time since October 2009.
He sees that in these conditions, short dated OTM calls are now more expensive than puts. Since they are a barometer for expectations about the strength of the direction of spot, risk reversals are widely used as a metric by the FX market. In this sense, Juckes wonders whether this switch is just a blip, or a more decisive signal? Juckes continues to explain that his analysis concludes that firstly, the switch is by no means an anomaly and secondly, the negative skew regime is certainly over. From now on, risk reversals should exhibit more frequent sign changes, and less explosive trends either way for some time.
He sees that in these conditions, short dated OTM calls are now more expensive than puts. Since they are a barometer for expectations about the strength of the direction of spot, risk reversals are widely used as a metric by the FX market. In this sense, Juckes wonders whether this switch is just a blip, or a more decisive signal? Juckes continues to explain that his analysis concludes that firstly, the switch is by no means an anomaly and secondly, the negative skew regime is certainly over. From now on, risk reversals should exhibit more frequent sign changes, and less explosive trends either way for some time.
Free Annual Reports
