EUR/USD: Options market turns cautious ahead of Fed v/s ECB battle

One-month risk reversal (RR) for the EUR/USD, a gauge of calls to puts, drops for the first time in the last three days as per the latest options market data on Reuters.

The downbeat signals join the market’s anxiety ahead of the key monetary policy meetings by the European Central Bank (ECB) and the US Federal Reserve (Fed).

That said, the RR figure of -0.037 remains in favor of the US dollar bulls amid firmer expectations of the Fed’s faster tapering and rate hike despite Omicron's woes.

It’s worth noting that the US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, remain sluggish of late, suggesting a challenge for the Fed hawks.

Technically, a downward sloping trend line from late September, around 1.1345, becomes short-term key resistance while EUR/USD bears await a clear downside break of 1.1230 level for fresh entries.

Read: EUR/USD Weekly Forecast: The Fed and the ECB ready to rock markets