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
Mixed
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
GBP/USD
Mixed
USD/JPY
Bullish
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
Bullish
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
Bearish
More View more
Real Time News
  • Forex Update: As of 03:00, these are your best and worst performers based on the London trading schedule: 🇪🇺EUR: 0.04% 🇬🇧GBP: 0.03% 🇨🇦CAD: 0.02% 🇦🇺AUD: -0.00% 🇳🇿NZD: -0.02% 🇨🇭CHF: -0.04% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/MhXCqXQZBS
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 98.17%, while traders in France 40 are at opposite extremes with 83.60%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/51OEaBUR7T
  • RT @YuanTalks: #PBOC cut yuan’s fixing by 89 pips to 7.0306 per USD, vs 7.0217 one day earlier.
  • RT @globaltimesnews: China urges the US to stop provocations to avoid unforeseen incidents. The Chinese military is determined to safeguard…
  • The $AUD and its local #ASX 200 stock index have diverged in what may be a sign of market confidence in ebbing US-China trade war and #Brexit risks. Get your market update from @IlyaSpivak here: https://t.co/nuN48hX6d6 https://t.co/7eMZlyYqaM
  • Japan, South Korea still in talks to avoid ending intellectual pact -BBG citing Kyodo
  • Fascinating read. Highly recommend. https://t.co/ZU71iqJzXe
  • The #Euro has stalled after brief recovery against the US Dollar. The dominant price trend bias continues to favor weakness on the horizon. Get your $EURUSD market update from @IlyaSpivak here:https://t.co/ooJMpdE8xq https://t.co/yT5oj0G82s
  • #USDCHF pivot points (daily) – S3: 0.985, S2: 0.9886, S1: 0.9908, R1: 0.9943, R2: 0.9957, R3: 0.9993- https://www.dailyfx.com/pivot-points?ref=SubNav?utm_source=Twitter&utm_medium=DFXGeneric&utm_campaign=twr
  • RT @lisaabramowicz1: Hedge-fund firms reported the eighth straight month of client redemptions in October, the longest stretch of withdrawa…
US Dollar Outlook Remains Bullish on Futures, Options Sentiment

US Dollar Outlook Remains Bullish on Futures, Options Sentiment

2011-05-25 21:00:00
David Rodriguez, Head of Business Development
Share:

Speculators continue to scale back US Dollar short positions, and FX Options point to further Greenback gains through the coming weeks of trading.

Our benchmark FX Options risk reversals strategy remains long the US Dollar against the Euro (short EURUSD), Canadian Dollar, and Australian Dollar (short AUDUSD). There is strong evidence that the US Dollar hit an important bearish sentiment extreme through May, and a continued deleveraging across speculative positions could force further gains. Indeed, we remain overall bullish the resurgent Greenback through coming weeks of trade.

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

15.00%

28.85%

62.71%

51.72%

57.38%

25.40%

26.32%

1-Month

1.75%

25.00%

100.00%

64.29%

61.90%

19.67%

22.81%

3-Month

3.28%

16.67%

100.00%

69.49%

69.81%

12.50%

10.00%

12-Month

1.96%

45.45%

100.00%

81.82%

48.00%

64.29%

3.28%

DailyFX Volatility Index Percentiles

Volatility Index

1 Week

2 Weeks

1 Month

3 Months

1 Year

Indices

63.08%

81.54%

87.30%

89.23%

89.23%

forex_options_futures_forecast_body_Picture_1.png, US Dollar Outlook Remains Bullish on Futures, Options Sentiment

Euro/US Dollar Options Analysis

forex_options_futures_forecast_body_Picture_2.png, US Dollar Outlook Remains Bullish on Futures, Options Sentiment

Our views from last week are effectively unchanged: “Our benchmark FX Options risk reversals trading system hypothetically took a EURUSD-short position as of May 13 at approximately the 1.4120 mark, pointing to further declines on the sharp sentiment swing. The most recent CFTC Commitment of Traders report likewise shows that Non-Commercial traders—typically large speculators—scaled back aggressively on EURUSD longs as of early last week.

We have persistently warned that a sentiment extreme may have been developing as traders had grown very heavily net-short the US Dollar. The recent correction from USD-bearish extremes suggests this could be the start of a larger correction and points to EURUSD declines.”

British Pound/US Dollar Options Analysis

forex_options_futures_forecast_body_Picture_3.png, US Dollar Outlook Remains Bullish on Futures, Options Sentiment

A noteworthy bounce in the GBPUSD prevented our FX Options risk reversals system from going short the GBPUSD, and recent CFTC data shows that trades have completely shed their previous bias. We previously claimed that strongly net-long open interest left risk of declines on deleveraging. Yet Non-commercials are now effectively flat the GBPUSD, giving us little in the way of a short-term trading bias.

It is worth noting that our proprietary Speculative Sentiment Index data (not pictured) has recently shown retail trading crowds flipped net-short the GBPUSD. Said shift gives contrarian signal to watch for short-term strength.

US Dollar/Japanese Yen Options Analysis

forex_options_futures_forecast_body_Picture_4.png, US Dollar Outlook Remains Bullish on Futures, Options Sentiment

Japanese Yen futures and options trader sentiment continue to show mixed signals for the USDJPY, giving us little conviction in our sentiment-based forecasts. The currency pair remains in a secular downtrend since peaking in late 2007. Yet more recent price action has seen a material shift in FX Options risk reversals, and they trade toward the top of their quarterly range. A continued correction would leave our FX Options risk reversals-based system long the USDJPY through upcoming trade.

On the flipside, CFTC Commitment of Traders data actually shows Non-commercial traders are net-short the USDJPY (long the Japanese Yen). Said mixed signals water down our otherwise modestly bullish bias.

US Dollar/Canadian Dollar Options Analysis

forex_options_futures_forecast_body_Picture_5.png, US Dollar Outlook Remains Bullish on Futures, Options Sentiment

Our analysis is unchanged from last week: “Our benchmark breakout-style risk reversals trading system hypothetically went long the USDCAD from May 4 at approximately the C$0.9595 mark, and an important shift in sentiment points to further gains. We have long argued that extremely one-sided Non-commercial futures positioning warned that a USDCAD short-covering could force substantive strength. A continued shift towards bets on and hedges against USDCAD would point to further rallies.”

CFTC Commitment of Traders data has grown progressively less net-long Canadian Dollar (short USDCAD). A continued short covering could produce further USDCAD strength.

US Dollar/Swiss Franc Options Analysis

forex_options_futures_forecast_body_Picture_6.png, US Dollar Outlook Remains Bullish on Futures, Options Sentiment

Our analysis is effectively unchanged from last week: “Aggressive week-to-week shifts in FX Options risk reversals make it difficult to establish a lasting bias in the USDCHF pair. Our benchmark FX Options risk reversals system hypothetically went short USDCHF on March 17 near the SFr 0.9165 mark and closed it as of May 6 near 0.8790. Risk reversals subsequently spiked higher on the short-term US Dollar correction but have since declined. All the while, CFTC Commitment of Traders data shows that speculators have modestly pared their bets on Swiss Franc strength (USDCHF weakness).

We will wait for a more lasting shift in sentiment before taking an aggressive stance on the USDCHF. All else remaining equal, its strong downtrend favors continued weakness. “

Australian Dollar/US Dollar Options Analysis

forex_options_futures_forecast_body_Picture_7.png, US Dollar Outlook Remains Bullish on Futures, Options Sentiment

Our FX Options risk reversals trading system hypothetically went short AUDUSD from May 12 near the 1.0680 mark, as a strong shift in market sentiment suggests the pair may have set an important top. CFTC Commitment of Traders data continues to show Non-commercial traders have further covered AUDUSD long positions. A continued deleveraging could force further AUDUSD losses.

The fact that we have seen multi-year peaks amidst record-long positions in the AUD and since pulled back suggests that this is the reversal we have been waiting for.

New Zealand Dollar/US Options Analysis

forex_options_futures_forecast_body_Picture_8.png, US Dollar Outlook Remains Bullish on Futures, Options Sentiment

An important reversal in FX Options sentiment warns that the New Zealand Dollar could continue lower against its US namesake, and our benchmark FX Options risk reversals system went short as of May 17. Yet CFTC Commitment of Traders data has held up—suggesting that speculators are not quite yet willing to let the NZDUSD reverse further. We remain overall bearish, but it will be important to watch for a larger shift in NZDUSD 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.