Leading oscillators signal EUR/USD to extend slumps; PRBS hedges
The USD index has recouped half its post-payroll losses, though speaking about the dollar these days somewhat misses the point: idiosyncratic factors have driven cross-market correlations to such low levels that stability in the aggregate conveys little about the underlying frenzy across pairs.
On the flip side, Euro has been collapsing from the peaks of May 2014 (almost more than 23%) although some stability was seen from mid April’15 but still there is no trace of recovery despite all attempts by euro area leaders.
RSI (14) on weekly chart converging with falling prices (Currently, RSI trending at 43.6244). This leading oscillator has started evaluating when the prices touched 1.0885 by taking the computation of last 14 weeks 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 (Currently, %D line at 33.3332, while %K line at 17.7829). Stochastic on monthly curve also remains in the oversold territory but proper trace of %K crossover that signifies weakness in the euro.
Hence, we still project 1.10 for end-2015, a cyclical low of 1.08 in Q1 2016, and a slow uptick from there to 1.11 by June 2016 and 1.13 by Q3 2016.
Hedging Frameworks:
The delta risk reversal for 1m contracts have shown bearish signals back again and long term (1M-1Y) put contracts are also on higher demand.
While the pair still maintains the highest place for implied volatility of 1W at the money contracts among G7 currency space, almost nearing 12%, certainly rising higher which is favorable for those look for option writings.
With this qualitative reasoning, we recommend arresting further downside risks of this pair by hedging through Put Ratio back Spread.
Expect the underlying currencies EURUSD in this case to make a large move on the downside.
As shown in the figure purchase 1m 2 lots of At-The-Money -0.48 delta puts and sell 1w one lot of (1%) In-The-Money put option usually in the ratio of 2:1.
The short ITM puts funds to the purchase of the greater number of long puts and the position is entered for no cost or a net credit. The delta of combined positions should be around -0.34 with slightly negative theta value.
On the flip side, Euro has been collapsing from the peaks of May 2014 (almost more than 23%) although some stability was seen from mid April’15 but still there is no trace of recovery despite all attempts by euro area leaders.
RSI (14) on weekly chart converging with falling prices (Currently, RSI trending at 43.6244). This leading oscillator has started evaluating when the prices touched 1.0885 by taking the computation of last 14 weeks 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 (Currently, %D line at 33.3332, while %K line at 17.7829). Stochastic on monthly curve also remains in the oversold territory but proper trace of %K crossover that signifies weakness in the euro.
Hence, we still project 1.10 for end-2015, a cyclical low of 1.08 in Q1 2016, and a slow uptick from there to 1.11 by June 2016 and 1.13 by Q3 2016.
Hedging Frameworks:
The delta risk reversal for 1m contracts have shown bearish signals back again and long term (1M-1Y) put contracts are also on higher demand.
While the pair still maintains the highest place for implied volatility of 1W at the money contracts among G7 currency space, almost nearing 12%, certainly rising higher which is favorable for those look for option writings.
With this qualitative reasoning, we recommend arresting further downside risks of this pair by hedging through Put Ratio back Spread.
Expect the underlying currencies EURUSD in this case to make a large move on the downside.
As shown in the figure purchase 1m 2 lots of At-The-Money -0.48 delta puts and sell 1w one lot of (1%) In-The-Money put option usually in the ratio of 2:1.
The short ITM puts funds to the purchase of the greater number of long puts and the position is entered for no cost or a net credit. The delta of combined positions should be around -0.34 with slightly negative theta value.