Risk reversals on both the euro/dollar and sterling/dollar are negative at –1.237 and -1.263 respectively. Though off the five week lows they touched last week they both imply that the majority of options investors are expecting weakness in the euro and sterling against
the dollar. Negative risk reversal indicates put volatility is greater than call volatility,
implying more investors are betting the currency will fall than rise. Calls are options granting the right to buy an asset, and puts give the right to sell.
Cable now has a death cross where a shorter term simple moving average crossed below a longer term moving average in daily trading. In sterling/dollar it was the 50-day SMA crossing below the 100-day SMA. In the euro dollar. the 100-day SMA is four pips from crossing below the 200-day SMA.
The pound is still the best performing currency of the 36 most actively traded
against the dollar this month with a 2.4 percent gain and the euro is up 0.6
percent. But the market is implying that neither is going to be up against the
dollar for too much longer. Let the buyer beware.