EUR/USD - Risk Reversals flat lined, Will it track S&P 500 drops lower?

The EUR/USD pair rose to a high of 1.1774 on Friday before closing the week at 1.1759 levels. Throughout last week, the sellers ran out of steam below 1.1720 levels. Meanwhile, the S&P 500 fell by the most in three months on Thursday and ended the week lower by about 40 points.

EUR/USD and S&P 500 comparison chart

The chart above shows the EUR has been treated as a growth currency this year. This is evident from the positive correlation between the S&P 500 and EUR/USD. The correlation strengthened after Macron’s victory in the French Presidential election, but is now weakening.

With S&P 500 looking southwards, will the EUR/USD follow suit or remain resilient?

Risk Reversals flat lined

• The chart above shows, the one-month 25-delta risk reversal is flat lined, indicating the pair could continue trading sideways this week ahead of the Jackson Hole event.
• A rise in risk reversal indicates increased demand for Calls, while a drop points to increased demand for Puts.
• The flat action in the risk reversal suggests the EUR/USD is less likely to track S&P 500 lower or the investors see the drop in equities as another opportunity to load up stocks. 

EUR/USD Technical Levels

The pair traded dead flat in Asia around 1.1750 levels. FXStreet Chief Analyst Valeria Bednarik writes, “the corrective movement can extend during the next few days, as in the daily chart, the price has been unable to recover above a horizontal 20 DMA, while a daily descendant trend line coming from the mentioned high stands now around 1.1800. The Momentum indicator in the mentioned chart is losing its bearish strength, but still heading south within negative territory, while the RSI indicator hovers around 55, with no certain directional strength. Shorter term, and according to the 4 hours chart, the pair presents a neutral stance, with technical indicators flat within positive territory and the price trapped between its 20 and 100 SMAs, both directions. The 1.1820/30 price zone is the key resistance to overcome to open doors for a new leg higher towards the mentioned yearly high.”