EUR/USD rally is real, option players expect Cable to test 1.34

The EUR/USD rose to 13-1/2 month high of 1.1538 in Asia, pushing the 14-day RSI close to overbought territory. There hasn’t been a meaningful correction in the pair since Macron rally of mid-April. Thus, many would be compelled to think the rally is overdone.

However, the options activity suggests the rally is real and due for further extension. The preliminary data published by the CME for July 17th shows, an addition of 906 contracts to total open interest (OI) of in-the-money (ITM) call options. 

1.15 call options witnessed an addition of 936 contracts, while 1.1450 calls added 16 contracts. Marginal drop was registered in other deep in-the-money calls. Meanwhile, the open interest in ITM Puts fell by 13, while the OTM Puts, particularly the 1.14 Put witnessed an addition of 262 contracts in the OI. 

The big build up in the near-the-money call (1.15 Strike) adds credence to the Asian session rally in the EUR/USD pair. Moderate additions in the OTM Put (1.14) could be risk averse investors buying insurance against long spot positions, given the technical indicators are nearing overbought levels. 

GBP/USD - Option players expecting further gains

The preliminary CME data for July 17th that the OI in call options rose by 589 contracts compared to 273 additions in the put options. OI in OTM calls rose by 558 contracts. The details reveal that the OI in 1.34 call option rose by 255 contacts and the OI in 1.3350 call rose by 172 contracts. Meanwhile, 1.2950 put shed 119 contracts and 1.29 put added 194 contracts. 

Clearly the investors are expecting the GBP/USD spot to extend the rally to 1.34 levels, which interestingly is the resistance offered by the big trend line sloping downwards from July 2014 high and Aug 2015 high.