EUR/USD Analysis: Are investors prepping for a downside move?
|- Indecision reigns supreme, the EUR/USD technical chart shows.
- Options data show investors are braced up for a downside move in the common currency.
Euro's rally from 1.2216 (April 6 low) seems to have run out of steam around 1.24 over the last couple of days. Also, the daily chart shows the EUR has created back-to-back doji candles, a sign of indecision in the market.
Daily chart
A daily close above 1.2414 (April 17 Doji candle high) would a signal resumption of the rally from 1.2216 and could yield a sustained rally to 1.25 - 1.2559 (yearly highs). On the other hand, a close below 1.2336 (April 17 doji candle low) would allow a deeper pullback to 1.2198 (100-day MA).
An upside break is certainly possible given the common currency has been able to hold ground despite widening US-German yield differential. However, investors are prepping for a downside move, the CME data shows.
EUR/USD EUUK8 Open Interest Change: Current (Apr 18 - Prelim) vs Apr 11 (Source: CME)
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CALL SUMMARY |
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| TOTAL | ITM | OTM | |||
| OI | CHG | OI | CHG | OI | CHG |
| 38,635 | 282 | 8,265 | -471 | 30,370 | 753 |
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PUT SUMMARY |
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| TOTAL | ITM | OTM | |||
| OI | CHG | OI | CHG | OI | CHG |
| 38,718 | 1,351 | 4,866 | -249 | 33,852 | 1,600 |
The open interest (OI) or open positions in the EUR call options witnessed a net addition of 282 contracts in the week ended April 18, while the OI in the EUR puts jumped by 1,351 contracts. So, the bias is bearish.
Also, it is worth noting the OI in the ITM (in-the-money) puts fell by 249 contracts and the OI in the OTM (out-of-the-money) puts increased by 1,600 contracts. Clearly, the cheap out of the money puts (Sell EUR bets) are in demand.
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