Option traders have turned to the Euro and the Yen, betting that the dollar will "fall more slowly."

After a sharp decline in the US dollar last week, forex traders are changing their options strategies betting on a weaker dollar. Nomura Securities and Standard Chartered Bank stated that traders are adding barrier levels to options on the yen and euro against the dollar to reduce the cost of buying call options. Their intention is to profit from the gradual appreciation of these currencies, with the options becoming invalid if they reach these barrier levels within a specific time frame. Aadith Raman, a forex option trader at Nomura Securities in London, stated: "Clients are still looking for opportunities to bet on the US dollar's decline against the euro and yen, but now they are using a leveraged structure," indicating their expectation that "the dollar will weaken more slowly from now on." Traders are employing strategies such as reverse knock-outs and early knock-outs. If the barrier levels are reached within the specified time frame of the options contract, these options will cease to exist, or be "knocked out." Buyers of these options hope for the gradual appreciation of the euro and yen so as not to reach the barrier levels. Saurabh Tandon, Global Head of Forex Options at Standard Chartered Bank in Singapore, said: "We see strong interest in bullish trades on the euro against the dollar in the market," with most demand concentrating on one to three-month time frames. He mentioned that European digital call options are among the most popular trades, providing fixed returns if the currency pair reaches or exceeds the predetermined strike price at expiry, but there is also demand in the market for leverage trades like "reverse knock-outs and early knock-outs." Data from the Chicago Mercantile Exchange Group's Options Central Limit Order Book showed that on Tuesday, trading volume for euro call options (which increase in value if the euro appreciates against the dollar) was twice that of put options. These bets indicate that many traders believe the downturn of the dollar will continue as the Trump administration updates its tariff policies and multiple countries retaliate. Bullish bets on the yen and euro this week come after many investors heavily bought put options on the dollar. Since April 9th, the dollar has been plummeting due to concerns about the escalating global trade war potentially hindering US economic growth. Bloomberg's dollar index dropped by 2.4% last week, the largest decline since 2022. While trading volume has decreased from last week as the market attempts to stabilize, the trend still leans towards a weaker dollar. Data from the Commodity Futures Trading Commission shows that leveraged funds held their highest long positions on the yen since January 2021 in the week ending April 8th. Nathan Swami, APAC Head of Forex Trading at Citigroup in Singapore, stated: "Last week, we saw strong demand for options on G10 currency pairs like the euro, yen, and Aussie dollar with one to three-month time horizons, driving implied volatility to high levels. Much of this buy-in volatility is in the form of put options on the dollar."