Options Traders are Shifting Against the Euro at a Rare Pace

Sentiment toward the euro soured sharply this week as turbulent French politics prompted options traders to take the most bearish stance on the currency in months.

Even as French stocks and bonds recover, the euro is poised for its worst week in a year and options pricing shows the gloomiest month-ahead outlook for the common currency since June. That’s a sharp turnaround given traders were still broadly bullish as recently as Tuesday.

The moves this week are among the most striking for the common currency in recent years: So-called risk reversals are showing their third-biggest bearish repricing in a week since the summer of 2022.

While that move still trails the scramble that followed French President Emmanuel Macron surprise decision to call a snap election last year, it underscores how quickly political risk can reshape sentiment.

Markets were rattled at the start of the week with the resignation of France’s prime minister. Now, investors are looking to President Emmanuel Macron ’s naming of a replacement this evening in the hope that it calms markets and opens the way to getting a budget through parliament.

Data from the Depository Trust & Clearing Corporation show traders reversing the bullish bias that had built up since March. Hedge funds and real-money accounts are now selling euros, targeting a move below $1.15, according to Europe-based traders.

Still, it’s not purely a euro story. A broader is also amplifying the currency’s weak performance.