### POV: FX OPTIONS MARKET..............>

EURO-DOLLAR: ### POV: FX OPTIONS MARKET PRE-EMPTING SHIFT IN ECB GUIDANCE

-Every EUR/USD risk reversals contract out to three years has retreated sharply

since the Jan24 ECB decision, with RRs out to six months today nursing their 8th

consecutive day of declines, the longest losing streak since March last year.

The contracts show downside hedges becoming relatively more expensive compared

with upside protection. This coincides with inflation expectations in the

Eurozone receding sharply: the 5y5y EUR inflation swap hit 2+ year lows last

week, placing more pressure on the ECB to acknowledge the beginning of a policy

tightening cycle is unlikely to take place "through Summer".

-The retreat in risk reversals coincides with implied vols generally falling

across FX space and particularly in EUR/USD (1m vols printed below 6.0 for the

first time since late 2017 last week). This move has provided some cheap hedging

options relative to recent history: trimming the break-even on a 1m straddle by

30 pips to a roughly 150 pip swing in EUR/USD, a contract that would cover the

key March 7th ECB rate decision as well as speeches from the new ECB Chief

Economist Philip Lane.