FxWirePro: CFTC FX Positioning on EUR/JPY, OTC Outlook and Options Strategy

EUR saw funds and asset managers continue with their opposite stances. The former trimmed their net shorts by USD1.2bn to USD15.1bn, while the latter cut their net long positions by USD0.1bn to USD19.4bn (refer 1st chart).

Funds bought JPY and EUR against the USD but were net sellers of GBP and CHF.  Money managers also bought JPY but CHF as well, while selling EUR and GBP.

The safe-haven demand for JPY saw both funds and asset managers trim their net JPY shorts further by USD0.6bn and USD0.9bn to USD1.7bn and USD2.3bn respectively (refer 2nd chart).

Both leveraged funds and asset managers were net USD sellers, with the former continuing to trim their USD longs and the latter raising their USD shorts. Post the CFTC cut-off date, the USD has lost further ground on the growing expectation of Fed rate cuts. We expect Fed policy and developments on the trade front ahead of G-20 summit in late June to drive the near-term positioning in USD. 

OTC Outlook:

Hedging skewness (EURJPY): Please be noted that the positively skewed IVs of 3m tenors that are also signifying the hedging interests for the bearish risks (refer 3rd chart). The bids for OTM puts of these tenors expect that the underlying spot FX likely to break below 119.50 levels so that OTM instruments would expire in-the-money. 

Risk reversals Substantiate Skews (EURJPY): Most importantly, to substantiate the above indications, we could see some minor positive shifts in existing bearish risk reversal set-up of EURJPY that indicates the long-term hedging sentiments across all tenors are still substantiating bearish risks amid minor abrupt upswings in the short-term (refer 4th chart). Please be noted that 3m IVs are overall OTC barometer is noteworthy size in the forex options market that can stimulate the underlying forex spot rate.

Options Trade Recommendation (EURJPY):We’ve advocated buying 3m EURJPY (1%) ITM -0.79 delta puts for aggressive bears on hedging grounds as the mild abrupt upswings were contemplated earlier. 

Alternatively, we advocate shorts in futures contracts of mid-month tenors with a view to arresting potential dips. Courtesy: Sentrix, ANZ, and Saxobank

Currency Strength Index: FxWirePro's hourly EUR spot index is flashing at -31 levels (which is mildly bearish), while hourly JPY spot index was at 98 (bullish) while articulating at (10:00 GMT).

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex