Currency Options Trading - USD Index Chart 21st October 2009

For currency options trading today, the weekly USD index chart continues to look extremely fragile with last week’s narrow spread down candle simply adding further pressure to an already battered US dollar. The only positive signal US dollar bulls can take from last weeks trading in the USD Index is that the spread was relatively narrow and failed to pick up the momentum from the previous week. Indeed many currency options traders and analysts had forecast a sharp reversal in the US dollar, as many now believe the currency is oversold and due for a reversal higher in the short term. However this failed to materialise last week, but with the FOMC meeting and rate decision taking place on Wednesday, this could provide the trigger should the statement hint at any concerns over the ongoing weakness of the US currency. For currency options trading this week therefore, we need to be cautious ahead of Wednesday, as this could be the catalyst that the markets are now waiting for, and as we have seen many times before, when everyone is trading in once direction, then a reversal is almost certain to occur, and with increasing numbers of retail traders now involved in currency options trading, the same principles apply as in the spot forex markets. However should this fail to spark a US dollar revival, then there is very little to stop a further fall to the next level of support in the 72.50 price point, where we could see a rebasing of the index in due course.

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