Ralph Shell @ 2:18 PM, Thursday April 29 2010
Today it looks like some of the bear pressure on the euro has abated. Weather there is just cause for the changed sentiment or the bear is merely tired of continuous negativity remains to be seen. Open interest in futures at the CME continues to increase, up 5,430 contracts on a down day, but the expanded interest spread to the euro options. Yesterday the OI in euro options increased by 24,443 contracts taking the total OI up to 381,717 contracts, larger than the 244K euro futures. It is interesting to note that the increase in the option OI was equally balanced between puts and calls, about 12,000 apiece.
The sharp increase does not imply that there is a pick up in bulls or bears, merely the interest in the euro is growing. Many professional traders are option writers. They may have a market bias, but they try to make their money by staying delta neutral, making adjustments as the market prices change. On paper this looks like a great way to grind out a nice return on your money, but having personal experience writing options, markets can change a lot faster that you can make position adjustments. Further, option liquidity is practically non existent during tumultuous markets so the underlying futures is your only offset. The pick up in the OI is not a market predictor, except that is forecasting increased interest in the euro.
The pound did take out the area under the 1.52 handle twice, but has since come back nicely, currently trading around 1.5320. This morning a Nationwide HPI m/m report provided a little support up 1% better than the expected 0.4%.
Tonight will be the final debate prior to the May 6 election and the focus is supposed to be about the economy. Fear of a hung parliament continues with the resurgence Klegg and the Lib Dem party combined with Labour's Gordon Brown's contraction of 'foot in mouth' disease. It is assumed that a split parliament would be unable to make the tough decisions needed to address the countries debt issues.
The Timesonline , in an article this morning entitled: "Winning election a poisened chalise, leaders warn" said:
"Mervyn King, the governor of the Bank of England, has privately warned
that
whichever leader wins the election next week will be kicked out of power
for
decades because of the severity of budget cuts they will have to
instigate,
it was claimed today."
Like the euro there was an increase of over 5700 contracts in the pound futures OI, but unlike the euro, there was no pick up in options open interest. Though we do have the potential for a weekend surprise, and as a result, are not anxious to establish new positions late Thursday, the level above the 1.5350 is tempting for a small starter position.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.