Continued US Dollar rallies have been met with similarly aggressive moves in FX Options sentiment, pointing to further USD gains through near-term trade. Several weeks ago we argued that US Dollar bearish extremes in CFTC Commitment of Traders Futures positioning warned of a potential reversal, and sharp moves in options prices raised the likelihood that the USD had bottomed. Our stance is little changed, and current readings support the case for Dollar strength.
Futures markets show that a previous build in one-sided EURUSD and GBPUSD speculative longs could invite many traders to close USD-shorts, and such a correction in positioning could continue to drive the Greenback higher against major counterparts.
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Risk Reversals | |||||||
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EUR/USD |
GBP/USD |
USD/JPY |
USD/CAD |
USD/CHF |
AUD/USD |
NZD/USD |
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1-Week |
30.86% |
35.40% |
21.34% |
65.36% |
6.76% |
48.52% |
56.80% |
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1-Month |
21.29% |
43.51% |
29.49% |
62.89% |
0.68% |
44.51% |
44.51% |
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3-Month |
26.62% |
42.67% |
29.81% |
63.69% |
0.66% |
42.35% |
41.32% |
|
12-Month |
28.19% |
48.05% |
47.50% |
62.50% |
0.68% |
44.51% |
53.64% |
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DailyFX Volatility Index Percentiles | |||||||
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Volatility Index |
1 Week |
2 Weeks |
1 Month |
3 Months |
1 Year | ||
|
Indices |
53.97% |
57.81% |
69.23% |
63.08% |
56.45% | ||
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Euro/US Dollar Options Analysis |
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Several weeks ago we wrote that a sharp shift in EURUSD sentiment as seen through FX Options pointed to continued declines, and our stance is little changed. Non-commercial Futures positioning data showed speculators at their most bullish the Euro against the US Dollar since the pair traded near the 1.45 mark. The sharp turn lower in FX Options risk reversals suggested that the tide had turned in the US Dollar’s favor, and indeed we’ve seen the EURUSD continue lower. Given considerable momentum to the downside, we have little reason to shift our EUR-bearish bias. |
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British Pound/US Dollar Options Analysis |
 Our short-term trading bias for the British Pound/US Dollar pair is quite similar to that of the EURUSD, as a noteworthy correction in FX Options sentiment makes us short-term bearish the GBPUSD. Much like we see in the Euro/US Dollar pair, CFTC COT futures positioning data shows speculators were recently the most net-long GBPUSD since the pair traded significantly higher. The sharp turn lower in FX Options essentially served as confirmation that the tide had shifted, and we accordingly remain bearish until further notice. |
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US Dollar/Japanese Yen Options Analysis |
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CFTC Commitment of Traders data shows that speculators remain the most net-short USDJPY since late 2009, but continued US Dollar losses against the resurgent Japanese Yen makes calling for a reversal especially difficult. Continued US Dollar losses against the Japanese Yen have left Non-Commercial futures positioning at its most bearish since the USDJPY bottomed in late 2009. Yet FX Options risk reversals have not hit any significant extremes, and futures and options sentiment data alone does not support the case for a USDJPY bottom. |
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US Dollar/Canadian Dollar Options Analysis |
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A continued bounce in FX Options risk reversals suggests that the US Dollar may continue to recover against the Canadian Dollar.. Unlike the EURUSD and GBPUSD, however, futures positioning did not necessarily hit any major extremes. As such, our short-term USDCAD bias is only mildly bullish and the pair could very well consolidate through short-term trade. |
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US Dollar/Swiss Franc Options Analysis |
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Dramatic Swiss Franc advances (USDCHF declines) have left FX Options risk reversals plainly in favor of further USDCHF losses. Our benchmark breakout-style FX Options risk reversals system would have gone short the USDCHF as the 1-week 25-Delta Risk Reversal hit its lowest levels in the previous 90 days on June 14. Further declines greatly increase the chance of potential reversal, but options and futures sentiment continues to favor Swiss Franc strength. Until we see early signs of reversal, we remain modestly bearish the USDCHF. |
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Australian Dollar/US Dollar Options Analysis |
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A substantial build in speculative Australian Dollar longs leaves net-positioning at its highest bullish extremes since the pair topped in April. Yet surprisingly resilient FX options risk reversals give little reason to believe that, based on Futures and Options positioning alone, the Australian Dollar has set a significant top. The build in long positions certainly suggests that any sharp declines could force an unwind in positioning and exacerbate losses. Yet we would prefer to wait for FX Options risk reversals—often a leading indicator of futures positioning—to fall from their recent highs. |
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New Zealand Dollar/US Dollar Options Analysis |
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Our outlook for the New Zealand Dollar/US Dollar pair is quite similar to that of the AUDUSD, as a sharp build in NZD-long futures positioning leaves the pair at clear risk of further corrections. Yet surprisingly bullish FX Options data makes it difficult to claim that the pair has set a significant top through recent trade. We will wait until FX Options confirm a turnaround before taking a stronger stance on the NZDUSD. |
Written by David Rodríguez, Quantitative Strategist for DailyFX.com, drodriguez@dailyfx.com
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