One-week risk reversals on EUR/USD (EUR1MRR), a gauge of calls to puts, jumped to the highest level since January 2018 on Friday, indicating the investors are adding bets for continued strength in the common currency.
The metric rose to 0.30 from Thursday’s 0.20 reading, having bottomed out at -0.725 on Feb. 13.
The sharp rise represents an uptick in demand or implied volatility premium for call options (bullish bets).
However, if the EUR/USD pair fails to extend the recent rally, the investors may square off call options, creating downward pressure on the spot price.
The pair is currently trading near 1.1060, having picked up a bid near 1.0778 on Feb. 20. The risk sentiment has somewhat stabilized in Asia on speculation of co-ordinated easing by the major central banks. If the risk recovery gathers steam in Europe, the common currency may come under pressure.