EUR/GBP risk reversals hit 3.5 month low, spot dips below 0.87

• Risk reversals indicate rising demand for EUR/GBP puts.
• The pair dips below 0.87 in Asia.

EUR/GBP one-month 25 delta risk reversals adopted bearish bias (turned negative) on Jan. 22 and fell to -0.138 yesterday; the lowest level since Oct. 3. The negative print indicates rising demand for GBP calls.

Risk reversals

Also, the decline in risk reversals adds credence to the recent breakdown in the EUR/GBP spot. The currency pair closed below 200-day MA on Jan. 17 and fell below 0.88 on Jan. 22.

As of writing, the pair is trading at 0.8695 levels; the lowest level since Dec. 8. The spot could extend losses further if ECB's Draghi sounds less dovish than expected.

EUR/GBP Technical Levels

A break below 0.8689 (Dec. 8 low) would expose support at 0.8649 (Jun. 8 low). On the other hand, a move above 0.8733 (Nov. 1 low) could yield 0.88 (psychological level).