Arrest downside risks of EURUSD & EURGBP through tight hedge using PRBS

With 0.4% QoQ GDP growth in Euro area which was the biggest gain in last seven quarters, Euro has set up stage for medium term currency gains. The growth received a booster from the strong presentation of Italy and France which advanced a better than anticipated results at 0.3% and 0.6% respectively.

Now the question is are these gains sustainable..? This majorly depends on this week that is lined up for crucial data releases as follows.

Zew Economic Sentiment Index: Yes, German contribution to the above stated GDP numbers had disappointed at 0.3%. But for now institutional investors and analysts reviewed the economic outlook and scheduled to present their survey in numbers today. This index in the Euro Area increased to 64.80 in April of 2015 from 62.40 in March of 2015 reported by the Centre for European Economic Research (ZEW).

Although many economists think the German ZEW survey is not key for its ability to predict the economy, it suggests a first chance to see how much market confidence has been knocked by the surge in EUR and Bund yields.

Euro Area BoT: Trade balance is scheduled to be released today. Balance of trade in Euro area Euro Area recorded a trade surplus of 20300 EUR Million in February and 22.03 in March of 2015.

Core inflation YoY final: Core Inflation Rate in the Euro Area increased 0.6% in April of 2015 over the same period in the preceding year. The new print of this number is also on today's agenda. So, keep an eye on this as well.

Governing board VC of SNB: The Swiss central bank's board member Danthine is scheduled to speak today on responsibility for setting the nation's key interest rates and their public engagements.

Currency Derivatives Insights: (EURUSD & EURGBP)

Arrest downside risks of these pairs hedging through deploying option strategy: Put Ratio back Spread

Expect the underlying currencies (EURUSD & EURGBP in this case) to make a large move on the downside.

Purchase puts and sell fewer puts of a higher strike (ITM) usually in a ratio of 1:2.

The higher strike short puts finances the purchase of the greater number of long puts and the position is entered for no cost or a net credit.

The underlying exchange rate has to make substantial move on the downside for the gains in long puts to overcome the losses in the short puts as the maximum loss is at the long strike.

Give it a longer time to expiration so as to make a substantial move on the downside.