EUR/USD - Open positions in Puts spike, is the correction due?
|EUR/USD dipped to a low of 1.1998 in Asia as the USD sell-off ran out of steam on North Korea inaction.
Investors had ditched the US dollar on Friday in favor of lower yielding currencies on fears that North Korea may fire another missile over the weekend, thus leading to escalation of tensions in the Korean Peninsula.
The consensus in the market is that the euro is on track for more gains after European Central Bank President [ECB] Mario Draghi made it clear that it is not a question of if but a question of when they would start tapering asset purchases. Kath Lien from BK Asset Management says, " Between the ECB's plans to reduce QE purchases in October, their upgraded GDP forecasts, their limited concerns about the euro and our negative outlook for the U.S. dollar, we expect the EUR/USD to rise into the October meeting taking out 1.2135, an area where EUR/USD found support in 2010 and 2012 before making its way to 1.22."
However, the options market activity suggests the currency pair could revisit sub-1.20 levels. The preliminary data for EUR/USD Oct expiry options shows big jump in the open positions in the Put options.
Source: CME
- Open positions in Puts increased by 4605 contracts, out of which 3804 additions were in out-of-the-money options.
- Meanwhile, the open positions in Calls jumped by 2993 contracts. The ratio of change in open positions in Puts to change in open positions in calls is 1.53. A high ratio at the three-year high indicates the options market may be right this time, i.e. a corrective move below 1.20 is likely.
Attentions today will likely remain with wider risk trends as the domestic macroeconomic docket offers little to spark direction with focus turning to key U.S inflation and detail sales data due Thursday and Friday.
Fed Blackout: This week, there are no public speeches by Fed officials as they are in a communications black out period until the next Fed interest rate statement, which is scheduled for next week.
EUR/USD Technical Outlook
ProAct Forex Target Traders See: We are currently sitting @ 1.2027 in a 5th wave. We are looking to continue to the R6 @ 1.2772. The average daily true range (ATR) for the pair currently is 87 pip.
The daily chart shows that the 20 DMA has gained upward strength below the current level, whilst technical indicators have eased modestly from overbought readings, far from suggesting upward exhaustion. The long term daily ascendant trend line coming from 1.0603, comes around 1.1780, the level to break to talk about an interim top and a possible trend reversal. Shorter term, and according to the 4 hours chart, the risk is towards the upside, as the price settled well above all of its moving averages, with the shortest currently around 1.1975, and technical indicators having stabilized well into positive territory after correcting overbought conditions.
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