FX options and futures markets show USD sentiment towards almost all major partners near all-time lows and the one-sided stance suggests that the US dollar is close to a major tipping point. The current decline in the US dollar may actually be the start of a larger decline. The key question remains the timing of this reversal as long-term bearish US dollar sentiment remains extreme. According to our Chief Strategist, the Euro / US $ drop below 1.4980 is the first sign of an upward move.
Volatility expectations have risen sharply due to the recent US dollar losses. We typically see large swings in the market when volatility is at or near its peak. Of course, predicting the potential spike of volatility in the FX options market is a feat in itself. As things stand, we see that the US dollar may continue to fall in short-term trading. However, any further depreciation of the US dollar will only increase the potential for market corrections and increase the likelihood of a dollar recovery.
Euro / USD FX options and future forecasts
The futures position shows that non-dealers (generally large speculators) have become too strong for the euro against the US dollar. Indeed, the speculative position has been the longest since the euro traded around 1.6000 in early 2008. We constantly warn against extreme positions: moods can remain extreme for a long time . However, it is interesting to note that EURUSD hit a notable high.
British Pound / USD Forex Options and Future Prognosis
British pound futures options differ significantly from the US dollar as traders priced the British pound against the US dollar. GBPUSD recently consolidated into aggressive speculative short hedging, representing a purely non-trade short position of 65,346 contracts at 4,343,318 during the week ending 20 October.
Forex Options and USD / Japanese Yen Future Forecasts
Forex options markets show that traders have seen the USD / JPY (Japanese Yen) rise the most over the past 90 trading days, while the long-term price trend suggests we have a fairly clear downtrend. Extreme sentiment in the FX options market suggests that we may outperform USD / JPY and its long-term correction is very likely to continue. The main caveat is that the futures position actually shows that speculators are still quite short on the USD / JPY (long yen) and investing in speculative rates could fuel the USDJPY rally. Mixed signals give us a fairly neutral bias on USDJPY.
USD / CAD forex options and future forecasts
Traders saw the Canadian dollar (USDCAD for short) higher in the most recent trading session, with the forex futures data showing sentiment for the pair's biggest gain since the same barrier was traded. We keep asking for a USDCAD reversal and the recent rally suggests we can trade USDCAD much lower. This is because further weakening of the position will result in further losses in Canadian dollars (increases in USDCAD).
USD / Swiss Franc Forex forecasts and future forecasts
The non-commercial futures position on the US dollar / Swiss franc pair remains the most volatile in around 5 years, indicating significant swings in sentiment. The long Swiss franc (short USDCHF) outperforms short positions by over 20,000 and it is not surprising that the USDCHF is consistently sold on the edge. However, the last time pure CHF long positions reached this level was in December 2004 when USD / CHF hit a very low level. Keep an eye out for upcoming demonstrations.
Australian Dollar / USD Forex Options Future Forecasts
We continue to ask for a further decline in the Aussie dollar as sentiment has been extreme for some time. Non-commercial futures traders continue to have the greatest length on AUDUSD as the pair sells above 0.90, but these restructuring periods remain extremely difficult. Forex sentiment has reached the same extreme levels of sustained growth.
New Zealand dollar / USD currency options and future prognosis
The New Zealand dollar / USD pair is quite similar to the AUDUSD, leaving the door open for short-term downside in the event of strong swings in sentiment. A few weeks ago, the purely non-trade position in NZDUSD futures remained the longest since the pair hit significant highs in July 2007.
Written by David Rodriguez
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