|

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.

Author

Omkar Godbole

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

More from Omkar Godbole
Share:

Editor's Picks

AUD/USD consolidates above 0.7000; remains close to monthly top

AUD/USD holds steady above 0.7000 during the Asian session on Friday, trading just below the previous day's monthly low amid diverging forces. A hawkish RBA continues to support the Aussie, while the recent decline in US bond yields keeps the US Dollar depressed near a three-week low. However, oil-driven inflation fears reinforce Fed hike bets, which, along with geopolitical risks, could benefit the safe-haven buck and cap the currency pair.

USD/JPY bounces off one-month low; climbs to 157.00 amid reviving USD demand

USD/JPY rebounds from the 156.00 neighborhood, or a one-month low touched during Friday’s Asian session, with bulls looking to extend momentum beyond 157.00 amid the emergence of some US Dollar buying. Meanwhile, Japan's National CPI rose to a nine-month peak and reaffirmed BoJ rate-hike bets, which could support the Japanese Yen and cap gains for the currency pair.

Gold holds above $4,000/three-month low as Fed hike bets and firm USD cap upside

Gold struggles to capitalize on its modest recovery from levels below the $4,000 psychological mark, or a three-month low set earlier this Friday, and retains a bearish tone through the first half of the European session. Federal Reserve officials recently signaled there is no urgency to raise interest rates. Traders, however, are still pricing in around an 80% chance that the US central bank will raise borrowing costs again at its December policy meeting.

Crypto Today: Bitcoin holds the 50-day EMA as Ethereum and XRP face structural resistance

Bitcoin gradually ticks up on Friday, trading above $81,000. The Crypto King has recently defended structural support near $80,000, reinforcing the prevailing bullish outlook. Ethereum similarly edges higher above $2,400, while Ripple trades above $1.32 after testing support around $1.30.

US S&P Global PMI expected to show moderating business activity in October

The United States S&P Global preliminary Purchasing Managers Indices for October will be released on Friday, providing fresh insights into the health of the world's largest economy ahead of next week's Federal Reserve monetary policy meeting. The report includes the Manufacturing PMI, Services PMI and Composite PMI, which measure business activity across the private sector.

What November 3 means for the Fed's rate path and the US Dollar

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.