EUR/USD: Options market flips bearish as stocks turn jittery

The EUR/USD options market data shows investors are adding bets to position for weakness in the single currency amid renewed risk aversion in the financial markets. 

One-month risk reversals, a gauge of calls to puts, crossed below zero on Friday and now hovers at -0.50 at press time. A negative reading indicates that put options or bearish bets are drawing higher premium (or demand) than call options or bullish bets.

Hence, the move below zero represents a bearish shift in the market sentiment. 

The increased demand for put options could be associated with fears of the second wave of the coronavirus outbreak and the weak tone in the stock markets. 

According to Bloomberg, Tokyo reported a jump in the number of cases over the weekend, and a market in Beijing was closed due to a fresh outbreak. In addition, more than 20 US states have registered a rise in the number of cases. 

At press time, the futures tied to the S&P 500 futures are reporting a more than 1% daily loss and major Asian indices are flashing red. The US dollar, a global reserve, usually draws bids against most majors except the Japanese yen and Swiss franc during times of stress in the equity markets. 

And while EUR/USD is currently showing resilience at press time by trading largely unchanged on the day near 1.1259, options data suggests investors expect the greenback to soon find strong hands and push the currency pair lower. 

The pair fell by 0.64% on Thursday as the Fed-induced reality check dashed hopes of a V-shaped economic recovery and weighed heavily on the global stock markets. The Dow Jones Industrial Average fell by more than 1500 points, reviving memories of the March crash. The index did regain some poise on Friday but failed to put a bid under the common currency. EUR/USD fell by 0.39% on Thursday. 

Source: https://tinyurl.com/y73smwfl

This article was originally published on fxstreet.com

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