CNY to tumble on poor international trade volumes in Asia

Chinese international trade has been disappointing, their exports unpredictably fell 6.4 % in April from a year earlier and imports tumbled by a deeper than forecast 16.2 % which have to add fuel to the outlook that Beijing will rapidly level more stimulus to turn away a sharper economic slowdown.

China is expected to report April CPI unchanged at 1.4% YoY on tomorrow. PPI deflation probably deepened in mom terms due to weak commodity prices, but a positive base effect will probably result in a smaller decline in the headline figure (-4.5% YoY after -4.6% YoY).

While in Taiwan, we expect foreign trade to remain weak in April after the sharp contraction in Q1: export growth likely dropped again, by 8.5% YoY, while import growth probably fell by 15% YoY.

We could foresee the earning cycle in coming months in China over Europe has been tepid though it indicates the cheaper investment destination as China.

Technical and Derivative watch:
Option Strategy: Synthetic Put 

With a bearish trend to persist on CNY the traders advised to have long positions on EURCNY next month futures 

Or

Create long positions on Synthetic necked puts as we are quite clear on our bearish view on CNY.

Where a long (ATM) put option position can also be replicated by shorting in spot currency and by buying an At the Money Call (ATMC). This strategy can be deployed when there are premium differences.

The Profit/Loss from a shorting spot and buy calls positions are exactly same as those from the long put positions. The two combinations create a synthetic long put position with the same risk/reward profile of the long put.

However the above synthetic long put position is usually more expensive than just long put position.

The synthetic long put position has the same profit potential as long put.