Let's have a look on IVs inching lower in next 1month's time, as the pair forms whipsaw patterns that is moving in narrow range and lingering on 21DMA curve 07th Jan.

Ever since the price approached 21DMA curve it has been oscillating with this lagging indicator and moving in range bounded trend.

While leading oscillators substantiate this view by converging with the price line that is moving in linear direction.

Nevertheless, we feel comfortable with our forecasts and have left them unchanged this month (EUR/USD 1.05 at end - Q1 of2016 and parity by end-Q2). There are risks around that profile (EUR could be boosted temporarily by risk aversion in its role as risk off proxy or more sustainably by signs of inflationary pressures). But right now forward-looking indicators like the PMIs point to ongoing recovery (even accelerating in Q4) but no price pressures (the PMI output price index remains stubbornly sub-50).

We reckon EUR/USD may have shown little strength but downtrend likely to resume in long run.

When the observation on higher implied volatilities was coupled with the above technical reasoning, it triggers some sentiments for trivial upswings, here is the run through:

Hedging sentiments in OTC markets are retrogressive to what we've been seeing from last couple of months, to keep it precise we could notice neutral to slightly bullish hedging arrangements for next 1W-1M expiries (see risk reversals for 1W-1M expiries).

This could be attributed as writing opportunities for overpriced puts eyeing on short term upswings but keeping overall major trend to prolong bearish noises. Hence, the strategies have to be constructed so as to match this fluctuating trend.

These ATM vols in range bounded trend makes risk reversals into positive for 1 week's expiries and neutral for 1 month's expiries. We urge that this situation as a rosy opportunity to write ITM options as the neural delta risk reversals for next 1m contracts have coupled with whipsaw patterns on higher vols.

So, one can build bearish spreads capitalizing these upswings deploying ITM shorts in bear put spreads or put ratio back spreads or put ladders.