A sharp correction in US Dollar sentiment across FX Options markets gives us clear pause in our USD-bearish bias, but especially choppy price action makes it difficult to determine whether this may be the start of a Dollar reversal. Last week we plainly called for continued Greenback losses as FX Options traders placed aggressive bets on and hedges against USD weakness. Yet the more recent Dollar correction leaves clear doubt, and it is admittedly difficult to forecast the next market moves. The next several weeks of price action will likely be pivotal in determining the trajectory of the US Dollar.
Recent forex market moves have led to a sharp advance in forex options market volatility expectations, making short-term forecasts especially difficult and warning of large US Dollar moves ahead.
A surge in financial market volatility has produced substantial swings for the US Dollar, leaving FX Options markets volatility expectations at their highest in over a year. Our strategy bias subsequently remains weighted towards volatility-friendly Breakout strategies, and such trading styles have seen somewhat of a resurgence through recent trade.
A sharp jump in volatility expectations amidst broader financial market turmoil has led to very interesting shifts in forex options risk reversals, and it will be critical to watch short-term moves in key currency pairs.
