French IP in March likely to hit Euro, use PRS for hedging

We predict the French National Institute of Statistics to report that industrial activity increased by 0.2% MoM in March (1.3% yoy). If this prediction materialized then this would lead the industrial output to rise on QoQ basis as well.

Looking at the breakdown, energy output is likely to have dropped sharply by 5.3% mom in March, on the back of very weak energy consumption over the same period (-3.2% mom).

Key Points

Change in gross domestic product (GDP) is the major indicator of economic growth. GDP is estimated to have increased by 0.3% in Q1 2015 compared with growth of 0.6% in Q4 2014.

Output increased in services by 0.5% in Q1 2015. The other 3 main industrial groupings within the economy decreased, with construction falling by 1.6%, production by 0.1% and agriculture by 0.2%.

EUR/USD has traded a narrow range in early-week trade just above Friday's low at 1.1174. In absence of Tokyo and London markets this pair will ensure smooth trade today. And mid this week has predominant trade sessions are expected for Euro as UK general elections are scheduled on this calendar.

Derivatives insights:
Strategy: Short futures or buy a Put Ratio Spread (PRS)

Sensing the volatility in trend and slowdown in euro zone's growth, with house money we could see some shorting opportunities of EUR/USD futures for daily traders.

Or

Hedge through buying a Put Ratio Spread although we are neutral on this pair but expecting increased volatility.

This is the combination of Bear Put Spread and naked puts.

To construct this strategy, buy a Put and sell more Puts at a lower strike price in ratio of 1:2 or 1:3.

Short time to expiration is preferred to take advantage of time decay in short positions and not to give stock time to move lower.

Margin is required to take short Put positions.