Tuesday, 28 July 2009 19:13:18 GMT
Forex options and CME futures data show that anti-US Dollar sentiment continues to register impressive extremes, and it is increasingly a question of ‘when’ and not ‘if’ the USD will post a noteworthy correction. Indeed, CME data shows that traders remain the most heavily net-short the Greenback since early 2008—at which point the dollar set an important bottom against the Euro and other key currencies. Of course, the timing of such a move is far from clear; we will need to see signs of noteworthy price reversal before calling for a sustained USD rally.
Forex options and CME futures data show that anti-US Dollar sentiment continues to register impressive extremes, and it is increasingly a question of ‘when’ and not ‘if’ the USD will post a noteworthy correction. Indeed, CME data shows that traders remain the most heavily net-short the Greenback since early 2008—at which point the dollar set an important bottom against the Euro and other key currencies. Of course, the timing of such a move is far from clear; we will need to see signs of noteworthy price reversal before calling for a sustained USD rally.
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Our DailyFX Volatility indices are at the bottom of their medium-term ranges and continue trending lower, leaving little room for substantial currency moves through the foreseeable future. Said developments suggest that we can expect major pairs to stick within long-standing trading ranges, which in and of itself would support the case for a USD bounce. It will nonetheless be critical to watch whether the Dollar can hold key range lows against the Euro and other pairs.
Euro/US Dollar Options Analysis
The Euro continues to climb to fresh multi-month peaks and speculative positioning now shows traders are the most net-long the EURUSD since early 2008. Indeed, CME Futures data shows that Non-Commercial traders aggressively bought the Euro through last week’s trade. Forex options markets data has, perhaps surprisingly, not registered similar sentiment extremes. The divergence suggests that options traders are less concerned with persistent EURUSD strength. We maintain that the pair could see a substantial reversal, but the timing of said move remains extremely challenging.
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