EUR/USD - Call demand drops, rally done for now?

• EUR/USD risk reversals shed bullish bias.
• Vols see good demand, clock 4-month high.
• Eyes US personal spending data.

EUR/USD traded on the back foot in Asia as the rising treasury yield helped the oversold American dollar regain come poise. The currency pair hit a low of 1.2385, adding credence to the last week's bearish reversal (pin bar candle of Jan. 25).

EUR call demand drops

Having topped out at 0.575 on Jan. 17, the EUR/USD one-month 25-delta risk reversals gauge fell to 0.038 on Friday; the lowest level since Jan. 9. The slide indicates a decline in demand for the EUR calls.  

Further, one-month at the money option volatility gauge hit a four-month high of 7.807 today.  The combination of falling demand for EUR calls and rising volatility gauge could be an indication the EUR/USD is done for now.

The pullback could gather pace, reviving demand for EUR puts (risk reversals turn negative) if the US core personal consumption expenditure and personal spending number (due at 13:30 GMT today) beat estimates.

EUR/USD Technical Levels

Kathy Lien from BK Asset Management writes, "if EUR/USD fails to recapture 1.2470, it could slip back down to 1.22 on nothing more than a technical correction."

FXstreet Chief Analyst Valeria Bednarik writes, "according to the 4 hours chart, the downside seems limited, as the intraday decline stalled above a still bullish 20 SMA, currently around 1.2400, while the RSI indicator corrected overbought conditions, to consolidate around 58. The Momentum eased in this last time frame, rather reflecting the latest decline than suggesting a downward extension ahead.

Support levels: 1.2400 1.2360 1.2320

Resistance levels: 1.2490 1.2500 1.2535