Barclays: Playing short EUR through options market

Trade for the week ahead: Long 3m EUR risk reversal (sell call strike 1.1737, buy put strike 1.1004) for a cost of 13.2bp

We continue to expect EURUSD weakness in the months ahead and recommend owning downside via options at those levels. The failure to sustain the recent break above the 1.1460 September highs, along with bullish momentum extremes, points to topping risk.  A weekly close near the 1.1335 range lows would encourage our bearish view towards our targets near the 1.1085 range low. A move below 1.1085 would target more important support near 1.0810.

We recommend buying a 3m 25delta EUR/USD risk-reversal (EUR put/USD call) for a cost of 13.2bp (strikes: 1.1004, 1.1737, spot ref: 1.1357, atm vol: 9.19%), offering a compelling risk-reward should EUR/USD break below its recent range.

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