- Risk reversals show a sharp drop in demand for the EUR put options.
- EUR/USD found acceptance above 1.17 on ECB QE exit talk and EU-positive comments from Italy’s Conte.
- Focus on US unit labor cost reading.
The EUR/USD closed above 1.17 yesterday on news the European Central Bank (ECB) will debate QE exit at next week’s meeting in Latvia.
The uptick in EUR/USD could also be associated with Italy PM Conte saying his country has no plans to leave the Euro.
As of writing, the pair is trading at 1.1725. The corrective rally from the low of 1.1510 could be extended further as the ECB QE exit talk and Italy relief seems to have triggered an unwinding of EUR bearish bets (hedges) initiated last week.
For instance, the one month 25 delta risk reversals have jumped to -0.625 – the highest level since April 24 vs -0.625 on Tuesday. The uptick indicates falling EUR put premium or falling demand for EUR put options (bearish bets)
The demand for the EUR puts may drop further if US reports (at 12:30 GMT) a weaker-than-expected first quarter unit labor cost reading. Markets expect the data to show the total cost of employing labor force rose to 2.8 percent in Q1 vs 2.7 percent in Q4.
A below-forecast reading would push Treasury yields lower, leading to a rally in the EUR/USD. Meanwhile, an above-forecast print would boost the odds of faster Fed rate hikes and hence will likely hurt the EUR/USD pair.
EUR/USD Technical Levels
Resistance: 1.1744 (June 4 high), 1.1822 (May 9 low), 1.1855 (38.2% Fib R of Apr-May drop).
Support: 1.1698 (5-day moving average), 1.1652 (June 5 low), 1.1618 (june 1 low).
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