Forex Options Markets Warn of Euro, US Dollar Volatility
Posted 06-30-2010 at 05:23 PM by DailyFX
Tags euro, forex, us dollar, volatility
Recent forex market moves have led to a sharp advance in forex options market volatility expectations, making short-term forecasts especially difficult and warning of large US Dollar moves ahead. Shifts in FX Options risk reversals have been especially dramatic in fast-moving pairs such as the British Pound/US Dollar and US Dollar/Swiss Franc.
Recent forex market moves have led to a sharp advance in forex options market volatility expectations, making short-term forecasts especially difficult and warning of large US Dollar moves ahead. Shifts in FX Options risk reversals have been especially dramatic in fast-moving pairs such as the British Pound/US Dollar and US Dollar/Swiss Franc. In both cases, our benchmark breakout-style risk reversals trading system would have gone short the US Dollar amidst noteworthy declines. Forecasts for the Euro are admittedly much more difficult to determine, however, and it will be critical to watch the next moves in the Euro/US Dollar currency pair.
Read a how-to guide on understanding our Forex Options Weekly Forecast report or view a video on the same. Discuss outlook for individual currency pairs in our forex forums.
Euro/US Dollar Options Analysis
Extremely choppy Euro/US Dollar price action has produced similarly indecisive shifts in FX Options and Futures sentiment, making short-term forecasts difficult. Medium-to-long-term bearish momentum and net-short COT Non-Commercial futures positioning leaves broader trends in favor of EURUSD losses. Yet a more recent bounce in Forex Options Market risk reversals show that many traders are betting on and hedging against short-term EURUSD gains. If anything our bias remains weakly bullish, but we prefer to wait for clarification in trends before taking a stance with more conviction.
British Pound/US Dollar Options Analysis
Impressive British Pound strength has been met with a similarly strong shift in FX Options sentiment, leaving our short-term bias plainly in favor of further gains. Our benchmark risk reversals trading “breakout” strategy, which buys and sells on FX Options sentiment extremes, would have gone long the GBPUSD as the 1-week risk reversal hit its highest highs in the previous 90 days on June 14. A more recent pullback in said risk reversals suggests momentum is waning, and as such now may not be the best time to enter a long position. Yet the clear sentiment shift suggests that buying GBPUSD dips may work in our favor through upcoming trade.
US Dollar/Japanese Yen Options Analysis
[img]OWF 10-06-30_4[/img]
Forex options sentiment has very recently turned in favor of further USDJPY losses, leaving short-term momentum to the downside. The pair’s break below the psychologically significant 90.00 mark seems to have encouraged many to hedge against and bet on further USDJPY weakness. Though our risk reversal percentiles are still a noteworthy distance from bearish extremes, overall momentum and FX Futures positioning favors continued Japanese Yen gains (USDJPY losses). We remain cautiously bearish and may look to sell rallies through upcoming trade.
US Dollar/Canadian Dollar Options Analysis
Volatile and choppy price action in the US Dollar/Canadian Dollar pair has made for similarly indecisive shifts in FX Futures and Options sentiment, making short-term forecasts difficult to establish. The pair’s recovery from multi-year lows had previously left us firmly in favor of medium-term USDCAD gains (Canadian Dollar losses). Yet the more recent sharp correction to the downside gives us pause, and the USDCAD’s next moves are admittedly unclear. We will remain in “wait and see” mode until we see clarification in sentiment and trends.
US Dollar/Swiss Franc Options Analysis
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. Dramatic weakness leaves clear risk of short-term corrections, but it seems that the tide has turned in favor of continued CHF appreciation (USDCHF declines).
Australian Dollar/US Dollar Options Analysis
Our short-term bias for the Australian Dollar/US Dollar currency is quite similar to that of the Euro/US Dollar pair; mixed sentiment and intensely choppy price action makes it difficult to establish any short of conviction in short-term forecasts. The pair’s very recent dramatic downturn suggests that momentum favors continued near-term losses. Yet neither FX options risk reversals or Futures positioning show any real clues as far as sentiment is concerned. We may need to wait until further clarification before making any calls on the short-term trajectory for the AUDUSD.
New Zealand Dollar/US Dollar Options Analysis
Our short-term trading bias on the New Zealand Dollar/US Dollar pair is, perhaps surprisingly, quite different to that of the AUDUSD. A noteworthy turn lower in FX Options risk reversals shows that many traders have begun hedging against and betting on further New Zealand Dollar weakness. Given the pair’s very sharp turn lower through recent trade and the shift in sentiment, momentum seems to favor continued declines.
Recent forex market moves have led to a sharp advance in forex options market volatility expectations, making short-term forecasts especially difficult and warning of large US Dollar moves ahead. Shifts in FX Options risk reversals have been especially dramatic in fast-moving pairs such as the British Pound/US Dollar and US Dollar/Swiss Franc. In both cases, our benchmark breakout-style risk reversals trading system would have gone short the US Dollar amidst noteworthy declines. Forecasts for the Euro are admittedly much more difficult to determine, however, and it will be critical to watch the next moves in the Euro/US Dollar currency pair.
Read a how-to guide on understanding our Forex Options Weekly Forecast report or view a video on the same. Discuss outlook for individual currency pairs in our forex forums.
Euro/US Dollar Options Analysis
Extremely choppy Euro/US Dollar price action has produced similarly indecisive shifts in FX Options and Futures sentiment, making short-term forecasts difficult. Medium-to-long-term bearish momentum and net-short COT Non-Commercial futures positioning leaves broader trends in favor of EURUSD losses. Yet a more recent bounce in Forex Options Market risk reversals show that many traders are betting on and hedging against short-term EURUSD gains. If anything our bias remains weakly bullish, but we prefer to wait for clarification in trends before taking a stance with more conviction.
British Pound/US Dollar Options Analysis
Impressive British Pound strength has been met with a similarly strong shift in FX Options sentiment, leaving our short-term bias plainly in favor of further gains. Our benchmark risk reversals trading “breakout” strategy, which buys and sells on FX Options sentiment extremes, would have gone long the GBPUSD as the 1-week risk reversal hit its highest highs in the previous 90 days on June 14. A more recent pullback in said risk reversals suggests momentum is waning, and as such now may not be the best time to enter a long position. Yet the clear sentiment shift suggests that buying GBPUSD dips may work in our favor through upcoming trade.
US Dollar/Japanese Yen Options Analysis
[img]OWF 10-06-30_4[/img]
Forex options sentiment has very recently turned in favor of further USDJPY losses, leaving short-term momentum to the downside. The pair’s break below the psychologically significant 90.00 mark seems to have encouraged many to hedge against and bet on further USDJPY weakness. Though our risk reversal percentiles are still a noteworthy distance from bearish extremes, overall momentum and FX Futures positioning favors continued Japanese Yen gains (USDJPY losses). We remain cautiously bearish and may look to sell rallies through upcoming trade.
US Dollar/Canadian Dollar Options Analysis
Volatile and choppy price action in the US Dollar/Canadian Dollar pair has made for similarly indecisive shifts in FX Futures and Options sentiment, making short-term forecasts difficult to establish. The pair’s recovery from multi-year lows had previously left us firmly in favor of medium-term USDCAD gains (Canadian Dollar losses). Yet the more recent sharp correction to the downside gives us pause, and the USDCAD’s next moves are admittedly unclear. We will remain in “wait and see” mode until we see clarification in sentiment and trends.
US Dollar/Swiss Franc Options Analysis
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. Dramatic weakness leaves clear risk of short-term corrections, but it seems that the tide has turned in favor of continued CHF appreciation (USDCHF declines).
Australian Dollar/US Dollar Options Analysis
Our short-term bias for the Australian Dollar/US Dollar currency is quite similar to that of the Euro/US Dollar pair; mixed sentiment and intensely choppy price action makes it difficult to establish any short of conviction in short-term forecasts. The pair’s very recent dramatic downturn suggests that momentum favors continued near-term losses. Yet neither FX options risk reversals or Futures positioning show any real clues as far as sentiment is concerned. We may need to wait until further clarification before making any calls on the short-term trajectory for the AUDUSD.
New Zealand Dollar/US Dollar Options Analysis
Our short-term trading bias on the New Zealand Dollar/US Dollar pair is, perhaps surprisingly, quite different to that of the AUDUSD. A noteworthy turn lower in FX Options risk reversals shows that many traders have begun hedging against and betting on further New Zealand Dollar weakness. Given the pair’s very sharp turn lower through recent trade and the shift in sentiment, momentum seems to favor continued declines.
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