- Risk reverals show rising demand for out of the money AUD put options (bearish bets).
- Investors are likely expecting a deeper drop in the Aussie – dollar a proxy for China.
The AUD/USD one-month 25 delta risk reversals dropped to -1.00 today – the lowest level since June 29, indicating the implied volatility premium for AUD puts (demand for AUD puts) is higher than that of AUD calls.
It could be argued that investors are likely expecting a deeper drop in th Aussie dollar and hence are seeking downside protection, i.e. buying put options. At the time of writing, the Aussie dollar is trading at 0.7355, having clocked a high and low of 0.7375 and 0.7318, respectively.
PBOC’s massive CNY devaluation is likely hurting the Aussie dollar and other antopodeans and could force the Fed and Trump administration to launch a counter attack.
The technical charts indicate the path of least resistance is to the downside and bigger losses could be in the offing if th currency pair closes below the July 2 llow of 0.7310.
Hourly chart
Spot Rate: 0.7350
Daily HIgh: 0.7375
Daily Low: 0.7318
Trend: Bearish
Resitance
R1: 0.7382 (5-day moving average)
R2: 0.7402 (10-day moving average)
R3: 0.7441 (previous day’s high)
Support
S1: 0.7328 (May 2017 low)
S2: 0.7310 (July 2 low)
S3: 0.7145 (May 2016 low)