We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bullish
GBP/USD
Mixed
USD/JPY
Bearish
Gold
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Bitcoin
Bullish
More View more
Real Time News
  • NZD/USD Technical Analysis: Kiwi Dollar Rebound in the Works? - https://www.dailyfx.com/forex/technical/home/analysis/nzd-usd/2020/02/26/NZDUSD-Technical-Analysis-Kiwi-Dollar-Rebound-in-the-Works.html?CHID=9&QPID=917708&utm_source=Twitter&utm_medium=Spivak&utm_campaign=twr #NZDUSD #technicalanalysis https://t.co/4MOCgzUL6a
  • Forex Update: As of 08:00, these are your best and worst performers based on the London trading schedule: 🇨🇭CHF: 0.09% 🇪🇺EUR: -0.02% 🇨🇦CAD: -0.04% 🇳🇿NZD: -0.19% 🇯🇵JPY: -0.23% 🇦🇺AUD: -0.39% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/L74roUof0I
  • Indices Update: As of 08:00, these are your best and worst performers based on the London trading schedule: US 500: 0.66% Wall Street: 0.57% France 40: -0.63% Germany 30: -0.76% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/2HqH7X9r30
  • Hey, traders 👋 do you want live AMAS with our analysts, market updates and tools to improve your trading strategy? Join us now on Instagram! 👉 https://t.co/pHGzVMI3tC https://t.co/clt76kjXH4
  • European Opening Calls From IG: #FTSE 6975 -0.62% #DAX 12714 -0.60% #CAC 5653 -0.48% #AEX 580 -0.49% #MIB 22966 -0.54% #IBEX 9206 -0.49% #STOXX 3555 -0.49%
  • #AUDUSD accelerating lower as Chinese stocks benchmarks (#Shanghai Composite, #HangSeng Index) drop. US index futures (#SP500, #DowJones) are pointing higher however, so follow-through is in question. https://t.co/dEgNjn7gDu
  • GBP/CAD has broken below the September uptrend while EUR/CAD may be ending its consecutive 12 day decline with EUR/CHF approaching key resistance as NZD/CAD aims at November lows. Get your currencies update from @ZabelinDimitri here: https://t.co/GpRB7IKhTA https://t.co/uC8RCBwLW9
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 96.72%, while traders in USD/CAD are at opposite extremes with 70.31%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/9ytjuGRTBC
  • Recession risk is back on the rise and largely attributable to expected economic impact from the #coronavirus outbreak. Get your market update from @RichDvorakFX here:https://t.co/NhzJHEqwj6 https://t.co/0XVIiOWjID
  • Forex Update: As of 05:00, these are your best and worst performers based on the London trading schedule: 🇨🇦CAD: 0.01% 🇳🇿NZD: -0.04% 🇨🇭CHF: -0.09% 🇦🇺AUD: -0.12% 🇬🇧GBP: -0.12% 🇯🇵JPY: -0.22% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/GtO4ITHwT0
US Dollar at Risk of Further Losses vs British Pound, Yen

US Dollar at Risk of Further Losses vs British Pound, Yen

2011-02-02 16:41:00
David Rodriguez, Head of Product
Share:

FX Options data shows that many have recently bet on and hedged against continued US Dollar weakness against the British Pound and Japanese Yen—warning of continued USD losses through upcoming trade.

Last week we wrote that the US Dollar neared a potentially important bottom against major counterparts on a strong divergence in price and FX Options risk reversals sentiment. We continue to see a significant disconnect with Euro/US Dollar highs and trader sentiment. Yet it is exceedingly difficult to time any such pullbacks, and indeed we see risks for further USD declines against the Euro and other currency pairs. Elevated 1-week volatility expectations point to sharp price moves in the week ahead and momentum in price favors Greenback losses.

Watch a presentation on how you can use FX Options risk reversals and this report in your swing trades.

Risk Reversals

EUR/USD

GBP/USD

USD/JPY

USD/CAD

USD/CHF

AUD/USD

NZD/USD

1-Week

27.85%

72.73%

58.13%

37.67%

85.42%

90.80%

87.73%

1-Month

54.09%

72.41%

73.03%

30.07%

63.51%

86.50%

85.45%

3-Month

62.18%

78.95%

78.85%

36.48%

61.44%

77.44%

69.43%

12-Month

68.18%

94.96%

97.35%

40.28%

58.71%

72.26%

67.48%

DailyFX Volatility Index Percentiles

Volatility Index

1 Week

2 Weeks

1 Month

3 Months

1 Year

Indices

49.23%

32.31%

16.92%

4.62%

6.15%

US_Dollar_at_Risk_of_Further_Losses_vs_British_Pound_Yen_body_Picture_1.png, US Dollar at Risk of Further Losses vs British Pound, Yen

Euro/US Dollar Options Analysis

US_Dollar_at_Risk_of_Further_Losses_vs_British_Pound_Yen_body_Picture_2.png, US Dollar at Risk of Further Losses vs British Pound, Yen

FX Futures positioning shows that Non-Commercial traders hit their most net-long the Euro against the US Dollar since the pair traded near 1.40, underlining the swift shift in sentiment for the resurgent currency pair. Yet as we wrote last week, FX Options risk reversals have failed to match the highs seen in prices. Such a divergence warns that recent Euro gains have not been met with bets on and hedges against further strength. And though timing reversals is exceedingly difficult, the divergence reduces the attractiveness of Euro long positions.

British Pound/US Dollar Options Analysis

US_Dollar_at_Risk_of_Further_Losses_vs_British_Pound_Yen_body_Picture_3.png, US Dollar at Risk of Further Losses vs British Pound, Yen

A substantial reversal in the British Pound/US Dollar pair has been met with a likewise impressive bounce in FX Options risk reversals sentiment, supporting the case for short-term strength. Forex futures positioning shows that Non-Commercial traders are at their most net-long since the pair last traded above 1.60.

As with the EURUSD, we see some divergence between FX Options Risk Reversals and price; options sentiment is not hitting fresh bullish extremes despite highs in price. Yet it is less pronounced, and there is arguably scope for further GBP gains. That said, our benchmark FX Options trading systems are not particularly close to establishing a long position.

US Dollar/Japanese Yen Options Analysis

US_Dollar_at_Risk_of_Further_Losses_vs_British_Pound_Yen_body_Picture_4.png, US Dollar at Risk of Further Losses vs British Pound, Yen

The US Dollar/Japanese Yen pair has fallen sharply and FX Options risk reversals show a noteworthy deterioration in sentiment, calling for further losses through near-term trade. FX Futures positioning has likewise shown an increase in Non-Commercial bets on further declines, and overall momentum leaves USDJPY risks to the downside. Of note, our proprietary FXCM Speculative Sentiment Index currently shows retail trading crowds the most net-long the pair since it last traded below 81. Said fact gives us a contrarian signal to watch for further US Dollar losses against the resurgent Yen.

US Dollar/Canadian Dollar Options Analysis

US_Dollar_at_Risk_of_Further_Losses_vs_British_Pound_Yen_body_Picture_5.png, US Dollar at Risk of Further Losses vs British Pound, Yen

A substantial USDCAD reversal has led to a similarly sharp correction in FX Options risk sentiment. Yet we continue to note that risk reversals actually show that traders are overall betting on and hedging against further USDCAD gains through recent trade. There is an important divergence between FX Options sentiment and price action, warning against aggressive USDCAD short positions until further notice. Forex futures show that Non Commercial traders remain sharply net short, but again we see positioning pull back from recent extremes.

Our benchmark FX Options risk reversals system is close to hypothetically going long the USDCAD amidst what feels like an important correction from recent lows.

US Dollar/Swiss Franc Options Analysis

US_Dollar_at_Risk_of_Further_Losses_vs_British_Pound_Yen_body_Picture_6.png, US Dollar at Risk of Further Losses vs British Pound, Yen

FX Options and Futures positioning continues to show a major divergence between sentiment and USDCHF price action, warning of a potentially significant USDCHF bottom. Non-Commercial traders are actually the least USDCHF-bearish since the pair traded near SFr 1.06 in July, while our benchmark breakout-style FX Options risk reversals system hypothetically established a USDCHF long position as of January 20.

We believe that there is relatively little risk that the USDCHF sets a fresh low through upcoming trade. The considerable correction in sentiment suggests that the pair set an important bottom through December.

Australian Dollar/US Dollar Options Analysis

US_Dollar_at_Risk_of_Further_Losses_vs_British_Pound_Yen_body_Picture_7.png, US Dollar at Risk of Further Losses vs British Pound, Yen

The Australian Dollar has bounced from recent short-term lows, and a commensurate shift in FX Options risk reversals suggests many have begun to bet on and hedge against further AUDUSD strength. The choppiness in price action and sentiment has made it exceedingly difficult to establish any sort of lasting bias on said currency pair. FX Futures data shows Non-Commercial traders hit major net-long extremes before pulling back as the pair similarly failed to hold its highs.

Such reversals typically come at a major price extreme and suggest that the Australian Dollar could have set a significant price high through previous trading. Yet timing a short position has proved very difficult, and the recent bounce in Risk Reversals warns against overleveraging oneself to the downside.

New Zealand Dollar/US Options Analysis

US_Dollar_at_Risk_of_Further_Losses_vs_British_Pound_Yen_body_Picture_8.png, US Dollar at Risk of Further Losses vs British Pound, Yen

The New Zealand dollar has seen a similarly substantive shift in FX Options risk reversals, warning against taking aggressive shorts on the suddenly resurgent currency pair. The shift in sentiment suggests many have begun betting on and hedging against further NZDUSD rallies. And though we have remained steadfastly bearish the NZD for quite some time now, the short-term picture is clouded significantly by the sudden jump in risk reversals. We maintain that the NZD set an important high through the end of 2010, but taking short-term bets has become more complicated amidst a potentially important swing in sentiment.

Written by David Rodríguez, Quantitative Strategist for DailyFX.com, drodriguez@dailyfx.com

To be added to this author’s distribution list, send an e-mail subject line “Distribution list” to drodriguez@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.