EUR/USD - 3-month Vols at lowest since July despite Catalan crisis, Focus on Draghi

EUR/USD three-month at the money (ATM) option volatility dropped to 6.55; its lowest level since July 17.

3-month Vols

The decline in the volatility gauge (fear/uncertainty gauge) indicates that the investors are skeptical that Catalan can succeed in its quest for independence and expect the crisis to die down in a couple of weeks.

However, there is evidence that investors are hedging against a Catalan-led drop in the EUR/USD spot.

One-week risk reversals

The one-week 25 delta risk reversals has retraced from Oct 10 high of 0.25 and is close to being negative. The decline indicates the falling demand for EUR calls/increasing demand for out of the money Puts.

Focus on Draghi

ECB President Mario Draghi speech is scheduled at 08:10 GMT today. EUR might see a convincing break above 1.18 levels if Draghi hints at winding down of Eurozone stimulus in the near future. The bar of expectations has been set low as Catalan crisis is grabbing all the attention. Draghi may not discuss much of the monetary policy as the topic of the speech is "structural reforms in the euro area". ECB's Praet and Coeure will be speaking at the same conference as well.

EUR/USD Technical Outlook

The spot traded around 1.1770 levels in Asia. FXStreet Chief Analyst Valeria Bednarik writes takes note of "a clear bearish stance in the short term, as in the 4 hours chart, the price is also accelerating below its moving averages, whilst technical indicators gain further downward momentum within bearish territory. The pair faces its next short-term support at 1.1720, with a break below the level opening doors for additional declines towards the 1.1660 region, where the pair bottomed in August and September."

Support levels:  1.1720 1.1660 1.1620

Resistance levels: 1.1790 1.1830 1.1865