Peter Wadkins Currency Options and Flow Volume

 Just don’t see this type of Fx Research anymore and this

Was common just a few short years ago. Enter and target = profit destroyed today’s market and vast majority can’t enter, target and profit correctly.

BUZZ-Asset managers’ alpha thirst drives CAD secs flows

Nov 16 3:52pm By Peter Wadkins

CAD looks vulnerable judging by U.S. and Japanese equity movements since quarter end. Today’s Canadian international securities data highlights the impact of alpha on asset managers’ investment decisions. Canadians invested just 1.7bn in foreign equities in September vs August’s 7.2bn. It’s the August data that’s the outlier. On August 1 USD/CAD was 10% below May’s cycle peak, with the S&P up 5.3% and USD/CAD appearing to form a base above 1.2400. U.S. stocks looked cheap. The S&P’s rally peaked early, August 8. A week later so did USD/CAD. Lack of either FX alpha progress or underlying asset appreciation, prompted fund managers to start hedging U.S. assets. Volume spikes in FX and S&P futures at month end hint at sizeable flow. In September, foreign asset managers bought 18.7bn of mainly short-dated Canadian bonds, double August’s total. Offshore investors were rewarded on Sep 6 when the BoC hiked rates and USD/CAD plunged. By month end CAD/JPY rose 3.7% and EUR/CAD 1.5% more than offsetting fixed income losses. Since quarter end the Nikkei’s +9.0%, CAD/JPY is -1.7%, the S&P +2.7% and USD/CAD +2.1%, the TSX +1.9%. Portfolio rebalancing’s already underway.

RM weekly CAD flows, charts EURCAD & CADJPY:


BUZZ-FX options flows hint USD could still breakout

Nov 16 5:55pm By Peter Wadkins

Yesterday’s Deutsche Bank weekly option flow report noted the USD was the only major currency that benefitted from inflows, Swiss was the most sold, mainly USD/CHF calls however volumes dropped approximately 25%. That’s surprising because IMM CHF shorts jumped 20% – implying the options market is less convinced the topside’s going to break. Deutsche Bank’s SVACHF report (Skew Volume At-the money) indicates greater buying of USD/CHF calls over puts at roughly 2.3% of net. The BIS puts Swiss options volume at about USD 5bn a day so it’s not a huge number vs spot turnover. NZD puts over calls 2.2% of net, turnover USD8bn (BIS), so USD900mn for the week. CAD puts over calls around 1.7%, CAD options turnover 14bn a day (BIS) USD 1.2bn for the week. JPY as of Tuesday night was still being net sold, but puts over call sales dipped below 1% of net, with daily option turnover 74bn (BIS) that’s still 3.3bn for the week. The options market seems to be saying the buck could still breakout.

FX option flows:

BUZZ-EUR/USD options flow, gravestone question rally

Nov 15 2:56pm By Peter Wadkins

Today’s weekly Deutsche Bank FX option flow report reveals the USD was the only currency benefiting from inflows last week (1.1% vs 0.9%). Between Nov 7-14 the DXY dropped 1% while EUR/USD rallied 1.8%, so option flow implies options desks counter-traded the underlying USD move. Deutsche Bank’s SVAEUR report (Skew Volume At-the money) indicates greater buying of EUR/USD puts over calls for a second week. According to BIS data EUR/USD options turnover is around USD 64bn per day. Deutsche reported put volumes were a net 1.0% over calls which implies global buying of ATM EUR/USD puts over calls around EUR 540mn. That smacks more of value buying than sentiment shift but it’s interesting nonetheless. Deutsche Bank notes a correlation between their EUR data and IMM positioning data of 43%since 2014. Last week the IMM added almost 20% to EUR/USD longs. Both Deutsche and HSBC concur options flow and IMM positioning are good indicators of spec positioning. Given the discord between the two this week something’s amiss. The gravestone Doji on today’s EUR/USD candle is very bearish. EUR/USD bulls should be cautious.

EUR, EUR IMM positions


BUZZ-EUR flows: HF short squeeze, corp hedgers buy

Nov 14 3:58pm By Peter Wadkins

Global traders added to EUR/USD longs last week judging by Citibank’s weekly flow report. Last week Citibank saw USD net outflows of 3.8% of average weekly volume which, using the BIS 2016 triennial survey data as a benchmark, implies USD/G10 shorts grew roughly USD 180bn. EUR longs jumped 3.2% or approximately EUR60bn by the same criteria. However unlike the prior week, hedge funds were the biggest EUR buyers at 4.1% of their average weekly flow while banks and real money stood aside. Banks and real money remain long, but we estimate using Citibank’s flow data and BIS client group weightings that banks are long EUR/USD roughly E140bn, while RM, the next most active group according to the BIS are long 27-30bn. By the same criteria, corporate hedgers are even longer, having bought some E40-50bn over the past 9 weeks. HFs appear short EUR/USD, having sold some E11-13bn over the same time frame but they may have had residual longs heading into the period. Whatever the case, they’re buying EUR/USD on the short-squeeze. The long EUR/USD position overhang should slow EUR’s ascent.

BIS Triennial survey:

FX market turnover by counterparty:


Peter Wadkins and Brian Twomey MAY 2013

The cycle gurus refers to big John Taylor from Fx Concepts, the largest FX hedge fund in the world, now gone. Head trader was Jonathan Clark. Again I was a perfect trader dating back 8 and 10 years ago.


The cycle gurus weekly missive came out on the day that EUR/USD blasted through their 1.3215 “red flag” level and we waited with baited breath to see what their response would be – “Take ‘Em” – surely not. Well surprisingly enough they were not being contrite in fact they were almost salivating at the chance to sell higher up “Our target for this upmove is only the 1.3350 area and if seen this should be a good place to begin selling.” Yesterday’s peak was 1.3243 and that naturally threw them off, after all it was a clean break above their red flag – but as the cycle gurus have frequently cautioned, you don’t chart the extremes to confirm a break, you work off daily closing levels, EUR/USD closed at 1.3185.
So, from that yardstick the cycle gurus prognostications remain intact, until we close above 1.3215 there’s nothing to worry about – right? Well not quite so, given the fact we’ve been as high as 1.3243 there’s possibly something awry with the cycles – they’ve raised their red flag level … “Only a close above this level (1.3350) means the uptrend will become stretched and it will rally to the 1.3480 area before peaking, but this is less likely. By the week of May 20 and probably sooner the euro should turn lower and decline for several months.”
Now that we’ve had such a shocking reversal today, the cat’s among the pigeons, in fact their first red flag close above 1.3215 may well be correct. We tend to blame the “slings and arrows of outrageous fortune” after all their missive came out as usual ahead of the ECB but more importantly after the May Day holiday – in the midst of Japan’s “Golden Week” – in all probability 1.3243 would not have printed if not for yesterday’s liquidity starved conditions on the back of month-end squaring the day before. We noted last week that extreme volatility is typically a sign that a trend is coming to an end or a violent continuation, after today’s ECB outcome it seems to be the former.
The cycle gurus have some advice as to how to identify this fresh downtrend is upon us … “By the week of May 20 and probably sooner the Euro should turn lower and decline for several months. A close below the support at the 1.3020 to 1.3035 area is needed to immediately turn the outlook negative. It is then headed directly lower into the middle of June. Our initial target for this downtrend would become the 1.2550 area. The longer-term cycles argue this overall weakness can persist into August and the euro can fall to as low as the 1.2100 area before bottoming. A widening of the Bund/Bonos spread is a likely to be an early warning that the downtrend is resuming.”
Our view is that yesterday was exactly as we penned above – a bully boy liquidity squeeze that caught the market wrong-footed. Today’s ECB doves, some who wanted a 50bp rate cut, tell us monetary policy will be accommodative going forward but not so loose that growth will pick up dramatically because the committee remains at odds with itself. German elections and Germany’s role as Europe’s paymaster dictate that there will continue to be bickering over when to loosen the purse strings through the summer and not to expect a contrite ECB proclaiming mea culpa – we need to embrace QE. So no equity market rally there unless global markets are rallying elsewhere. Banks are talking about the “Draghi put” offsetting the “Bernanke put” which should allow USD to rise if growth remains positive (relatively)
Our black box friend Brian who just scalped a nice long trade, booked his profit at his target 1.3111 and waited for the dust to settle. Here’s what he has to say now … “EUR/USD. Market is locked between shorter term 1.3128 — 1.3020 and longer term 1.3224 — 1.2924. Longer term targets: 1.3263 and 1.3298 from longer term averages yet overbought at 1.3203 and a good sell point…
Longer term average has forecast 1.3260’s since just before March 5 but has yet to achieve that potential. Forecasts of 1.3300 and above will not be an easy road and doesn’t yet appear in longer range forecasts neither do 1.2800’s. Trend Intensity is at the highest readings and warns of imminent decline. That indicator has risen steadily since March 5 when EUR/JPY embarked on its advance from 119.00 to 131. It appears EUR/USD rises was all EUR/JPY buying related as the trend has warned of decline since March 5. My long trade today has a target of 1.3124 from current 1.3040 lows.”
Our rudimentary moving average model was -5 units EUR/USD last time we updated it April 25; spot was 1.3015 and we highlighted the fact that the model would turn long by 1.3038 and that is indeed what happened. By yesterday’s close it would have been long 15 units EUR/USD and at maximum vulnerability. We have seen what’s happened since and that’s why you cannot run a rudimentary M/A system, you need some bells and whistles to book profits and keep you out of harms way (like extended Bollinger Bands, stretched average true ranges, oscillators, RSIs etc.)
Updating the rudimentary model this afternoon (m-to-m 1.3058) the model is now 7 units EUR/USD short; some of the longer models with hefty losses having only recently being triggered long. Others surprisingly not too bad, that’s why we skew the model to incorporate more shorter term components than we used to. The blended  model say spot trades most comfortably 1.2890/1.3210 and gets stretched outside that area. Short term models say 1.2945/75 is oversold, ultra-short term say 1.2995/1.3045 is oversold. 1.3185/1.3300 is overbought from 24-hr M/A thru 55-days.
So from looking at Brian’s long term models (1.3263/98) ours (1.3185/1.3300) and the cycle gurus 1.3350 (only close above allows higher) we seem to be at a similar consensus as last week, 1.3200/40 is overdone, if you get another bite of the cherry, fade it.
       Brian Twomey

Brian Twomey and Peter Wadkins 2013

From 2012 to 2014, Peter Wadkins at Thomson Reuters was allowed wide variations to write FX commentary. But brilliantly expressed and true FX commentary in regards to deep depths to how FX markets operate, central bank longs and shorts, yields, imports and exports. Name it and Peter covered it in detail. Also from 2012 -2014, Peter included me in his commentaries and seen by many hedge funds, central banks, corporate trading departments. Back then I was perfect as demonstrated by Peter for many years.

As we noted in our piece yesterday “Models long, Black Box traders say watch out below” the market was vulnerable to a sharp reversal and it didn’t take much to eradicate the bullish tone. Just a big fig drop and the momentum models have flipped back from heavy long to neutral (ours as we cautioned from +11 to -1) If we had closed nearer the day’s low (1.2944) our model would have been even shorter (-7 units EUR/USD) This clearly demonstrates how fluid markets are presently and why the volatility is rampant, the confluence of all these moving averages are driving algorithmic trades in a way that exhausts human traders, in today’s technically driven markets headline risk is chopping up momentum systems.
We contacted our friend Brian who was comfortable holding onto his short posis from yesterday, it was more perspiration than inspiration yesterday, but faith in his systems paid off. As Brian works off multi-layered systems (similar to our blended M/A model but tweaked to perfection) He can be long and short at different levels with different targets. His long term shorts remain in place with a target of 1.2820 however profits were booked on the short stuff. He notes…
“EUR/USD overnight target hit for +74 pips, looks like a minor correction on the way to bring us back to 1.3019 then 1.3056 as my targets”… “My intention is to get back long in the low 1.29’s :- 1.2912, 1.2921, 1.2935 are perfect but today’s targets reveal we shouldn’t see lower than 1.2966. A day trade to buy at this low  will prove profitable. A break of 1.2982 should see 1.3011 and as long as we stay above 1.2957, corrective longs are safe.”
We marked to market at 1.2955 and we’re 30 pips higher so that’s already sending some individual components back long, which is why it’s best to wait for the close to make corrections to positions (unless you are an algo and it doesn’t matter, just keeps churning) M-to-M at 1.2985 the blended model would be +3 units EUR/USD, pretty flat, which is what it should be with the market in flux. The biggest change in overbought and oversold levels is naturally in the ultra-short term and short term portfolios which now get oversold from 1.2920 to 1.2805 (reflecting increase in volatility) and overbought 1.3055/1.3105 (ultra S/T) 1.3020/35 (S/T)
Once again we’ll leave Brian with the final word as he’s bee “dead reet” as they say in the old country; “My shorter term market scale 1.3063 – 1.2931″; intermediate/longer term 1.3174 – 1.2820.  1. 3200’s and 1.2700’s are not in the forecasts as either side would bring us deeply in either oversold or overbought territory. Averages don’t have the impetus just yet.” That’s how we see it too, it’ll take some serious wood chopping to break this market down or up in any serious way. Thanks Brian, as the Aussie say “Good on ya cobber”.
      Brian Twomey