Fed May Resume Rate Hikes: BofA Analysts Outline Key Scenarios 
Indian Refiners Scale Back Russian Oil Imports as U.S.-India Trade Deal Advances 
Dollar Near Two-Week High as Stock Rout, AI Concerns and Global Events Drive Market Volatility 
Asian Currencies Stay Rangebound as Yen Firms on Intervention Talk 
UK Starting Salaries See Strongest Growth in 18 Months as Hiring Sentiment Improves 
Gold Prices Slide as Rate Cut Prospects Diminish; Copper Gains on China Stimulus Hopes 
Asian Stocks Slip as Tech Rout Deepens, Japan Steadies Ahead of Election 
US Futures Rise as Investors Eye Earnings, Inflation Data, and Wildfire Impacts 
Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed 
Japanese Pharmaceutical Stocks Slide as TrumpRx.gov Launch Sparks Market Concerns 
Moody's Upgrades Argentina's Credit Rating Amid Economic Reforms 
Indonesia Surprises Markets with Interest Rate Cut Amid Currency Pressure 
Oil Prices Dip Slightly Amid Focus on Russian Sanctions and U.S. Inflation Data 
European Stocks Rally on Chinese Growth and Mining Merger Speculation 
Mexico's Undervalued Equity Market Offers Long-Term Investment Potential 
China Extends Gold Buying Streak as Reserves Surge Despite Volatile Prices 
Asian Markets Surge as Japan Election, Fed Rate Cut Bets, and Tech Rally Lift Global Sentiment 
A glimpse on fundamentals:
German IP plunged, likely due to holiday distortions.
German VDA car production data already point to a big rebound in January.
German election thrown open by the change in SPD leadership, while in France Le Pen revealed her agenda.
Feb consumer confidence in Eurozone: Confidence printed -4.9 in Jan which is a high dating back to early 2015. Consumer confidence gained some momentum in late 2016 after a poor start to the year and a downturn around Brexit. Though recent GDP and manufacturing surveys have been more positive, given the ongoing political uncertainty that foreshadows 2017, it is difficult to see the index strengthening much further
OTC updates:
The implied volatilities of EURAUD ATM contracts are trading shy above 7.13% and 8.08% for 2w and 2m tenors respectively, while the spot price in technical trend approaching near crucial juncture at the support of falling wedge, it seems to be equal opportunity for both bulls and bears with option writers of deep OTM calls are on slight upper hand.
While positively skewed 2w IVs are signaling the luring opportunities in out of the money call writings as the IVs are also on a lower side which is conducive for option writers. Hence, we encourage 2w 1.41 EURAUD call.
Hedging Framework:
3-Way Options straddle versus OTM call
Spread ratio: (Long 1: Long 1: Short 1)
How to execute:
At spot reference: 1.3840, initiate long in EURAUD 2M at the money +0.51 delta call, go long 2M at the money -0.49 delta put and simultaneously, short 2w (1.5%) out of the money call with positive theta.
Rationale on fundamental grounds: Euro area business and consumer surveys point to solid growth momentum in the region. Sentiment improved significantly during Q4’16 and remained robust in January, with the strong sector and country details. Consistent with this signal, Euro area GDP increased a solid 2% QoQ, SAAR in Q4’16 and was revised up for Q3 in the flash GDP report, published almost two weeks ago. Since then, the December plunge in German IP reported this week contradicted this positive message.
But, in our view, there are good reasons to fade this IP weakness, given that industrial orders were strong and that the VDA car production data already show a big rebound in January. The December IP drop could lead to a slight downward revision to Q4’16 Euro area GDP but should be compensated in Q1’17. Moreover, elections in this region are likely to add turbulence to the FX markets.
