USD/CNY risk reversals turn negative on CNY call demand

• The USD/CNY one-month 25 delta risk reversals have adopted a bearish bias, courtesy of rising CNY call demand.
• The bearish turn indicates the USD/CNY is in for a deeper pullback.

The USD/CNY one-month 25 delta risk reversals (CNY1MRR) fell to -0.075 - the lowest level since June  7 - indicating rising demand for cheap out of the money CNY call options (bullish bets).

The risk reversals had hit a high of 0.875 on June 28 as the sharp sell-off in the Chinese yuan had boosted demand for the CNY put options (bearish bets).

The decline from 0.875 to -0.075 suggests the options market has gone from being CNY bearish to CNY bullish, adding credence to the last week's big bearish inverted hammer candle on the USD/CNY chart.

CNY1MRR