* One-month risk reversals show new bias for euro calls
* First time in three years 1-month risk reversals have
* Move seen heralding near-term euro gains
By Anirban Nag
LONDON, Jan 30 A rally in the euro to it highest
in 14 months against the dollar shows no sign of fading with
investors in the options market betting for the first time in
three years on near-term gains in the single currency.
While a yet stronger euro could make European politicians
more uncomfortable, with some warning of a "currency war",
investors are so far unperturbed.
The single currency has made broad gains this year, boosted
by European Central Bank chief Mario Draghi cautious optimism
about the region's recovery and euro area banks returning some
of the cheap loans they took from the central bank last year.
The euro's gains come as the Japanese authorities are trying
to weaken the yen by easing monetary and fiscal
policies, while the U.S. Federal Reserve has unleashed a fresh
dose of asset purchases aimed at reviving the sluggish jobs
Closer to home, the risks of a euro zone break-up have waned
since the ECB pledged to buy bonds of struggling countries that
sought its help. All this has left the euro more attractive to
investors and speculators who had bet against the currency for
much of 2012.
Investors are steadily buying options that bet on euro gains
in the next month. This is the first time in three years that
such bets have been placed, option traders said.
The one-month risk reversals, which measure of
the relative demand for options on the euro rising or falling
against the dollar, flipped in favour of euro calls -- bets the
currency will rise -- from puts just last week.
Option traders reported deals struck at 0.15 vols in favour
of euro calls on Wednesday.
One-week risk reversals also show a bias for
euro calls, implying gains are likely to be sustained in the
very near term, despite the euro having risen sharply
past $1.35 on Wednesday.
"The rise in the euro in the spot market has seen the
one-month euro risk reversals flip towards calls after having
teetered between puts and calls for some time," said a chief
options trader at a large European bank in London.
"Things are looking up for the euro. It's not that there is
heavy positioning for long euro strikes, but if the spot
continues to move higher, we could see the risk reversals along
the curve also flip."
Traders said three- and six-month risk reversals
are still showing a bias for euro
weakness, but the premium to buy options on a weaker currency is
"We continue to get asked for euro higher structures in euro
options," said Nigel Khakoo, head of global FX options trading