Chart 1: Leveraged Funds Greatly Reduce EUR Shorts
Chart 2: Asset Managers Increase Bullish EUR Positioning

Option strikes

Investors see EUR/USD upside and downside as balanced. According to CME Group data on option strikes:

  • Moderate net demand exists for EUR/USD calls solidly between 1.09 and 1.14 (Chart 3).
  • In contrast, there is also material net demand for EUR/USD puts between 1.08 and 1.03.

What to watch: The next Fed rate decision ( June 12) will be key; it falls on the same day as U.S. CPI. Markets expect the Summary of Economic Projections to show at most two cuts through 2024, yet we expect just one. Thereafter, EZ CPI details (June 18) and U.S. Core PCE (June 28) will determine the direction of EUR/USD, while the first Presidential Debate (June 27) will catch the eyes of traders globally.

Chart 3: Open Interest in EUR/USD Option Strikes

FX investor risk appetite

CME Group has a range of FX volatility data to help investors track the level of volatility. We can also use FX volatility data to determine investor risk appetite. We find the shape of the FX volatility curve useful in this regard. When shorter-dated FX implied volatility is higher than longer-dated volatility, this suggests investors are worried or in panic mode. In contrast, when shorter-dated FX volatility is lower than longer-dated volatility, this suggests investors expect calm markets. The latest data finds:

  • The FX volatility curve remains at steeper levels than throughout 2023, suggesting investors remain calm. This is likely because economic growth has stabilized and conviction remains that easier central bank policy is coming this year (Chart 4).

  • The move aligns with CME Group’s CVOL volatility indices, which have followed a similar dynamic to trade near year lows.

 Outside FX, equity volatility remains historically low, while rates volatility remains high.

Chart 4: FX Volatility Curve Remains Remains Steeper Than Throught 2023