Since sliding below 1.2050 we’ve not shown much inclination to bounce, indicating the market is comfortable sitting on its sizable short. Short that is, unless you are a retail trader. In that case you are likely sitting with a long that is well under water and you’re praying for a bounce.
The magnetic attraction of large 1.2000 barrier options may prove too strong with the market a mere half-cent away for much of a bounce until that level is overcome.
Why would 1.2000 attract the market? Let’s suppose you are one of the big dozen or so banks (or all of them) that dominate the options markets and you have sold options to customers who have bet that EUR/USD will stay in a predefined range.
If you are a market maker exposed to a 1.20/1.30 DNT (double-no-touch), for instance, you have much greater risk potential than you do the potential for reward. Therefore, if you get the opportunity to trigger important barrier levels, you do so, even if it ends up costing you a little money. In so doing, you eliminate large potential payouts to clients that would be paid out if the DNT remained intact at expiry.