Quant Signals: Risk-Reward Has Worsened For EUR/USD Longs
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USD weakness is predominant in US hours. The USD has weakened primarily in New York hours with some slight weakness in London hours as well. This suggests the investors have reduced expectations about Fed’s ability to hike in the light of perceived slump in broad US data.
Options suggest EUR uptrend may have limited upside now. While options were initially supportive of the new EUR uptrend, the picture has rapidly changed this week. The EUR skew has moved for puts, even as the spot rallied, suggesting hedging activity nearing the 1.15 level that is often associated with dovish comments from the ECB.
As a result, the Residual Skew is now also for EUR puts, off-setting positive momentum reading from the Up-Down vol. In our view, this suggests the risk-reward has worsened for EUR/USD longs with more limited upside.