Euro bonds: The sharp rise in Euro zone bond yields and further appreciation of the euro last week might look like a response to the recent improvement in the Euro zone's economic performance. But the renewed rise in oil prices is perhaps a more likely driver with different implications for growth.
Greece barrier: Euro zone executives come into sight more and more resigning to some form of Greek sovereign debt default, we suspect that this would restore the economy and secure the country's membership of the euro. Discretionary power exercised by the central bank (ECB) has put it at the heart of Greece's euro turmoil.
Inflation: The inflation rate in the Euro area was recorded at 0% in April of 2015. Inflation rate in the Euro area averaged 2.12% from 1991 until 2015. Inflation rate in the Euro area is reported by the Eurostats.
Technically we could smell the intermediate trend can gear up with upswings although we may see some minor hick ups due to prevailing drama in Greece aggravates the large economy. However that looks to be tackled by ECB's smart moves.
Trading & Hedging Insights:
With rational economic measures evidenced in Euro zone we can sense some sort of strength in Euro over Canadian dollar. Hence, we would anticipate the euro's appreciation over Canadian dollar. These calculations simply because of accurate euro's intrinsic price valuation there's nothing wrong with CAD though.
As we perceive the positive notes by Euro zone could prop up the EURCAD currency cross to bounce back to its original highs, the traders can be the beneficiary's if they build long positions in Futures.
On hedging front, we recommend the below strategy for medium term perspectives.
Derivatives insights:
Option strategy: Bullish Calendar Spread
On the downside risk perspective for CAD we are bullish to advocate a calendar spread on EURCAD currency cross. The reason why are we advocating calendar spread is that to ensure to spare the euro zone's high volatility factor aside.
This strategy can be established through selling a call option either of ATM or OTM as they are relatively cheaper over ITM and buying another call option of same strike price with longer maturity (far month contract).
Profit for such positions may typically be generated due to more time decay to expiration. The chances of hitting our targets will have Theta (time measure) benefits.
Break even at expiry would be the strike price plus premium.
