EUR/USD spot clocked a high of 1.1583 on Tuesday before falling back to 1.1514 on Wednesday. The pullback looks like a chart driven move… courtesy of the overbought RSI.
The stellar rally in the EUR/USD faces the moment of truth as Draghi will take centre stage today. The major part of the rally has been fueled by expectations that the ECB will announce the QE taper this year. A Bloomberg survey released earlier this month showed the ECB will hold fire this month and announce Taper in September. Investors also believe Draghi would remain non-committal today and avoid further appreciation in the EUR exchange rate.
Their fears are evident from the big improvement in the open interest (OI) in the out-of-the-money (OTM) put options.
| Call Summary vs 1.1555 (Source: CME) | |||||
| Total | ITM | OTM | |||
| OI | Chg | OI | Chg | OI | Chg |
| 33,851 | -28 | 21,597 | -122 | 12,254 | 94 |
| Put Summary vs 1.1555 (Source: CME) | |||||
| Total | ITM | OTM | |||
| OI | Chg | OI | Chg | OI | Chg |
| 34,604 | 1,057 | 738 | -386 | 33,866 | 1,443 |
The table above shows a big jump in the OI in the OTM put options. This, coupled with a drop in the OI in the call options suggests the investors are buying insurance against the long EUR/USD spot positions.
A similar jump in the OTM Puts OI was witnessed on 18th July as well.
EUR futures activity
The preliminary data published by the CME show the open interest in the EUR futures dropped by 996 contracts. However, the OI has risen by 13K contracts if we take into account the fact that the total OI stood at 433,566 last Thursday.
Clearly the traders/investors are bullish on the EUR, but are opting for downside protection ahead of the ECB rate decision.
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