US Dollar positioning and sentiment shows that many have increasingly bet on and hedged against Greenback weakness. And though Euro/US Dollar and British Pound/US Dollar outlook are far less clear, we see evidence that the USD could fall further against the fast-rallying Aussie and Kiwi dollars.
We likewise see noteworthy sentiment and positioning levels in the US Dollar/Swiss Franc and US Dollar/Japanese yen pairs. In both cases, there is considerable evidence that the US Dollar has or will set a significant low.
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| Risk Reversals | |||||||
| EUR/USD | GBP/USD | USD/JPY | USD/CAD | USD/CHF | AUD/USD | NZD/USD | |
| 1-Week | 67.74% | 18.64% | 95.16% | 16.95% | 21.43% | 28.33% | 27.42% |
| 1-Month | 38.10% | 9.80% | 52.63% | 68.42% | 18.33% | 27.12% | 27.42% |
| 3-Month | 30.77% | 8.77% | 36.67% | 71.43% | 22.58% | 20.34% | 21.67% |
| 12-Month | 26.32% | 22.03% | 27.59% | 80.00% | 24.14% | 16.39% | 23.33% |
| DailyFX Volatility Index Percentiles | |||||||
| Volatility Index | 1 Week | 2 Weeks | 1 Month | 3 Months | 1 Year | ||
| Indices | 67.69% | 67.69% | 71.88% | 70.77% | 74.60% | ||
Australian Dollar/US Dollar Options Analysis
FX Options trading bias: Bullish
FX Options sentiment recently hit its most bearish AUDUSD since the pair set a substantial bottom in early 2010, and a continued bounce off of said extremes favor short-term AUD strength. CFTC Commitment of Traders data has likewise shown Non-commercial traders have increased their bets on AUDUSD rallies.
The broader trend towards AUDUSD strength favors further short-term gains, and FX Options and futures sentiment/positioning supports a bullish trading bias.
New Zealand Dollar/US Options Analysis
FX Options trading bias: Bullish
The New Zealand Dollar looks unsurprisingly similar to the Australian Dollar, as recent corrections suggest the NZD may have hit an important bearish extreme and stands to strengthen through upcoming trade. One cause for concern is the fact that CFTC Commitment of Traders data recently showed Non-commercials at their most bullish on record. Unlike with the AUDUSD, positioning has not shown an increase in long positions in the NZDUSD.
Overall the short-term looks relatively bullish for the NZD, but there remain longer-term risks that the pair is near a significant high.
US Dollar/Japanese Yen Options Analysis
FX Options trading bias: Contrarian Bullish
CFTC Commitment of Traders data shows Non-commercial traders near their most JPY-bullish extreme (USDJPY-bearish) since the pair set an important bottom in 2008. Strongly one-sided positioning warns that the Japanese Yen may soon set a significant top (USDJPY bottom). Yet it is critical to note that sentiment extremes are only clear in hindsight, and positioning can remain very much one-sided for extended periods of time.
FX Options risk reversals show a mixed picture. 1-week options show traders increasingly betting on and hedging against USDJPY rallies. Yet 3-month options show traders remain very cautious. What?s more or less clear is that the pace of USDJPY declines will slow, but timing a major bounce remains very difficult.
US Dollar/Swiss Franc Options Analysis
FX Options trading bias: Bullish
FX options and futures sentiment continues to favor Swiss Franc weakness (USDCHF strength)?suggesting the USDCHF pair may have set a significant bottom through recent trade. CFTC Commitment of Traders data shows that Non-commercial traders have significantly scaled back bets on Swiss Franc strength (USDCHF declines), while FX Options risk reversals have bounced off of previously extreme levels.
The USDCHF 3-month risk reversal recently hit its most bearish since the pair first broke below SFr1.10 in 2009 and has since reversed. And though sentiment extremes are only clear in hindsight, there is increased risk that the USDCHF may have set an important bottom in the process.
US Dollar/Canadian Dollar Options Analysis
FX Options trading bias: Neutral
USDCAD FX Options sentiment has seen a noteworthy correction from recent bullish extremes, but futures positioning continues to point to further US Dollar recovery as traders pull back short positions. CFTC Commitment of Traders data shows that Non-commercial positioning is effectively neutral?an important shift from strongly one-sided bearish bets.
It is difficult to establish a strong trading bias amidst such pronounced choppiness. The recent trend towards USDCAD strength gives us a modestly bullish bias. Yet the shorter-term Canadian Dollar rally warns against aggressive USDCAD longs.
Euro/US Dollar Options Analysis
FX Options trading bias: Bullish
FX Options risk reversals have bounced noticeably, suggesting that traders have increasingly been betting and hedging against EURUSD rallies. FX futures positioning nonetheless shows that Non-commercial traders are effectively flat, and it seems few traders are taking aggressive positions on the range-bound Euro/US Dollar pair.
The recent correction in FX Options risk reversals gives us a modestly bullish bias, but it?s likewise clear that markets are increasingly indecisive and we will need to wait for a significant EURUSD shift to take a stronger bias.
British Pound/US Dollar Options Analysis
FX Options trading bias: Neutral
British Pound sentiment and positioning has been exceedingly choppy as of late, giving little indication on what we could expect going forward. The past two months have seen FX futures positioning correct considerably in favor of GBPUSD strength, and the currency pair has moved higher in kind. Yet FX Options risk reversals remain quite bearish, and it is difficult to call for further GBP rallies amidst bearish options sentiment.
We are admittedly unclear on what to expect in the GBPUSD. Key technical levels to watch are the upward-sloping trendline dating back to July lows currently near 1.6200 and topside resistance at 1.6450.
Written by David Rodr�guez, Quantitative Strategist for DailyFX.com, drodriguez@dailyfx.com
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