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Long

EUR/NOK holds tight supports, macros and hedging perspectives

FX:EURNOK   Euro Fx/Norwegian Krone
53 0 4
Off-late crude has slight strength in price rises but in a broader perspectives, NOK             continues to trade poorly driven by crude prices as the skepticism lingers around the commodity , EUR/NOK             from yesterday seems like taking U turn to retest the year's high above 9.7400.

Oil             prices dictate the short-term moves in NOK             , but the longer-term NOK             outlook will depend on the lasting effects of lower oil             prices to domestic drivers. NOK             is down nearly 30% in import-weighted terms since early 2013.

Ongoing NOK             depreciation continues to underpin inflation (possibly it is the only factor underpinning inflation ) though slower growth and lower domestic demand may drag prices lower once the FX effect starts to wane. Nevertheless, the size of the hit to NOK             looks exaggerated given Norway's strong fiscal position and capacity to support domestic growth.

Technically, EUR/NOK             from yesterday seems like taking U turn to retest the year's high above 9.7400, RSI signals buy as we see the bullish convergence, while stochastic favours bulls as it displays the %K crossover at oversold region, intraday sentiments have been bullish bias as it is holding stronger support at 9.4464 levels.

So to hedge NOK's uncertain trend, here goes the strategy: 2M (0.5%) in the money 0.66 delta calls and 1M (1%) out of the money calls with positive theta and prefer delta close zero.

This debit spread is preferred on a slight sceptic bullish attitude, the ideal situation for such diagonal bull call spread buyer is when EURSEK             price to remain unchanged or slowly creep up but certainly not beyond 1% within next 1 month and there onwards spikes up & beyond the strike price of the call sold.

In this scenario, as soon as the short call expires worthless, the options trader can write another slightly OTM call and repeat this process every month until expiration of the longer term call to reduce the cost of the trade. It may even be possible at some point in time to own the long term call "for free".
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