EUR/USD Analysis: Options Clues Hint More Upside In EUR

Optimism seems to have gripped the market participants as indicated by the rise in the open interest (OI) or open positions in the 1.22 Call expiring on Jan. 6.

EUR/USD EUUF8 Open Interest Change: Current (Dec 4 - Prelim) vs Dec 1

Open interest change

<

Source: CME

• The open interest in call options increased by 1157 contracts yesterday, while the OI in puts rose only by 282 contracts.
• Also, 1.22 call added 570 contracts, taking the total outstanding positions to 3219 contracts.
• Max open interest is seen in 1.19 call and 1.18 put. A significant buildup is also seen in 1.21 call and 1.22 call.

Clearly, this indicates there is room for a rally towards 1.22 levels. The rise in the OI in the 1.22 strike call coincided with the pair's recovery from the weekly 5-MA support yesterday.

Weekly chart

The above chart shows the odds are stacked in favor of a bullish move.

• Bullish 5-MA & 10-MA crossover, 5-AM acting as a strong support.
• Higher lows pattern as indicated by the rising trendline.
• Bullish 50-MA & 100-MA crossover.

View

• The spot looks set to revisit 1.20 and possibly extend gains to 1.22 levels.
• Two consecutive daily closes below 1.18 would abort the bullish view. This is because the max OI buildup is seen in 1.18 strike put. So a break below the same could force put writers to unwind their shorts, leading to a bigger drop in the spot.