US Dollar Forecast to Drop Against Japanese Yen on Forex Options

Forex options markets show that US Dollar/Japanese Yen sentiment is reaching extremes, and recent price action shows that said extremes have coincided with major USDJPY tops. Indeed, Risk Reversals—a measure of Options traders’ biases—show that traders are now at their most bullish the USDJPY in the past 90 days.

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Major US Dollar tops/Japanese Yen tops have recently occurred when our Risk Reversal Percentiles indicator has reached at or near 100 percent. Though past performance is clearly no guarantee of future success, today’s turn lower in risky asset classes likewise supports a turnaround in the highly-correlated USDJPY.

[B]Written by David Rodríguez, Quantitative Strategist for[/B]