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Short

EUR/USD breaks supports at 1.1063, bears likely to drag further

FX:EURUSD   Euro Fx/U.S. Dollar
256 0 7
The pair has just broken an important supports at 1.1063 levels with big real body candle to slip below moving average curves. Next strong support can be seen at 1.0969 levels While leading oscillators converge downward to these price dips.

RSI (14) on intraday and daily chart converging with falling prices (Currently, RSI trending at 46.9162). This leading oscillator has started evaluating the moment when prices touched 1.1060 by taking the computation of last 14 day periods the magnitude of recent gains to recent losses in an attempt to signifying the overbought pressures.

While %D crossover has been maintained on slow stochastic curve with every price dips again both on daily and intraday charts (Currently, %D line at 41.9762, while %K line at 24.7673). Stochastic on monthly curve also remains in the oversold territory but no proper trace of %K crossover that signifies weakness in the euro             .

The euro             has started the trading week with losses, as the pair trades at the 1.1060 in the European session. On the release front, German and euro             zone manufacturing PMI disappointed at 50.2 by missing estimates at 52.0. In the US, Manufacturing PMI is scheduled for today. On Tuesday, there are two key releases - German IFO business climate and US consumer confidence.

Hence, in long run we still project below or around 1.10 for Q1 end-2016, a cyclical low of 1.08 in Q2 2016.

Hedging recommendation:

The implied volatility of ATM contracts for 1M-3M expiries of this the pair is flashing at around 12%.
Delta risk reversals creeping up gradually with positive ticks for next 1M expiries to signify the hedging positions are well equipped for upside risks and downside hedging arrangements over the longer period of time. While current IVs of ATM contracts for 1M-3M expiries have been lingering around 11-12% which is at higher levels but likely to perceive hover well above 10% in long run.

Hence, comparing this difference between implied volatility, OTC             market sentiments, technical reasoning and in options premiums we think the arbitraging opportunity is generated.

Box Spread ratio: (Call - long 1: Short 1; Put - long 1: Short 1)
The long box is used when the spreads are underpriced in relation to their expiration values.

How to execute:

Go long in 1M EURUSD             (1%) in the money call, Short 1M EURUSD             (1%) out of the money call.
Simultaneously, Go long in 3M             EURUSD             (1%) in the money put, Short 3M             EURUSD             (1%) out of the money put options.

Please refer the below link for risk reversal and implied volatility table:
http://www.econotimes.com/FxWirePro-Diagonal-box-spreads-for-EUR-USD-risk-averse-as-OTC-positioning-suggests-short-euro-gains-but-weakness-in-long-run-165084
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