Of note, however, the US Dollar seems increasingly close to a turnaround against the surging Japanese Yen. Continued sentiment extremes in USDJPY-bearish futures positioning have now been met with bullish extremes in risk reversals. The latter is an early sign that price may soon correct, and any USDJPY rallies will likely be swift as speculators cover short positions.
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Risk Reversals | |||||||
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EUR/USD |
GBP/USD |
USD/JPY |
USD/CAD |
USD/CHF |
AUD/USD |
NZD/USD |
|
|
1-Week |
65.43% |
58.49% |
92.64% |
55.84% |
0.67% |
70.59% |
90.42% |
|
1-Month |
45.45% |
52.60% |
49.35% |
59.26% |
0.67% |
51.81% |
53.05% |
|
3-Month |
39.61% |
50.00% |
53.13% |
60.51% |
1.29% |
48.82% |
50.00% |
|
12-Month |
37.16% |
66.88% |
62.26% |
63.40% |
1.37% |
50.92% |
58.94% |
|
DailyFX Volatility Index Percentiles | |||||||
|
Volatility Index |
1 Week |
2 Weeks |
1 Month |
3 Months |
1 Year | ||
|
Indices |
53.97% |
43.08% |
41.54% |
52.31% |
53.23% | ||
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Euro/US Dollar Options Analysis |
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We have been calling for noteworthy EURUSD declines for quite some time now, but a more recent shift in FX Options sentiment suggests that the currency pair may correct higher through near-term trading. FX options risk reversals bounced significantly as the pair broke through the 1.28 mark, trading near their highest levels in the past quarter. Non-commercial futures positioning warns that the EURUSD is relatively oversold. Yet there is no real indication that the pair may reverse after noteworthy gains. We reluctantly remain short-term bullish until we see correction in risk reversals. |
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British Pound/US Dollar Options Analysis |
Our short-term trading bias for the British Pound/US Dollar pair is, unlike that of the EURUSD, mostly unchanged since last week. CFTC COT futures positioning data shows speculators were recently the most net-long GBPUSD since the pair traded significantly higher. Though FX Options risk reversals recently bounced from their lows, there is relatively little reason to believe that they will continue higher through the near term. As such, our short-term bias calls for GBPUSD weakness. |
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US Dollar/Japanese Yen Options Analysis |
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Non-commercial futures data continues to show speculators the most net-long Japanese Yen (short USDJPY) since the pair bottomed in late 2009, and noteworthy advances in FX Options risk reversals suggest that many traders have begun to bet on and hedge against USDJPY strength. We always hesitate to call for noteworthy reversals after such substantial trends. Yet it seems as though the Japanese Yen may soon see noteworthy pullbacks, and at the very least sentiment suggests that now is not a good time to establish fresh short positions. Watch for signs of the beginning of a reversal. |
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US Dollar/Canadian Dollar Options Analysis |
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Our FX Options and Futures-based bias is mostly unchanged for the US Dollar/Canadian Dollar. Last week: 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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Our USDCHF bias is largely unchanged from last week: 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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Non-Commercial futures positions saw a noteworthy pullback through last week’s trade, but equally sharp AUDUSD rallies have left FX Options risk reversals near their highest levels in the past quarter. On the one hand, large net-long futures positions leave risk of sharp declines if traders suddenly close their leveraged positions. On the other, there is no clear sign that such an event will occur through near-term trade. We’re left with little option but to wait for a clarification in sentiment and remain reluctantly bullish. |
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New Zealand Dollar/US Dollar Options Analysis |
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Analysis unchanged from last week: 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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