FxWirePro: Bid 2m EUR/CAD skews and deploy 3-way straddles on ECB and NAFTA events

We are near-term neutral EUR despite a resolute ECB given softer data. ECB is a long way from hiking and trade tensions are worsening. On the flip side, NAFTA has become the dominant driving force for CAD in the near-terms, as the negotiation process has
seemed to enter its end stage.

Technically, on a broader perspective, EURCAD’s major trend spikes through rising channel, but shooting star pops-up at stiff resistance at 1.5585 and 21EMAs, and hammer patterns at channel support (refer weekly plotting), both leading and lagging indicators signal faded strength. You could very well observe as and when the prices touched channel baseline and top line, the price pattern behaves in an adverse way.

EURCAD outlook:

While 1m IV skews have been well balanced on either side and signify the hedgers’ interests on both OTM call and put strikes. While the combination of 2w bearish neutral remains intact with shrinking IVs are conducive for writing any overpriced OTM calls. Use of three-legs option strategy would be a smart move to reduce hedging cost.

Options Strategy:

Contemplating above driving forces and OTC indications, we advocate initiating longs in 1M EURCAD at the money -0.49 delta put, and go long in at the money +0.51 delta call of similar expiry and simultaneously, short 2w (1%) out of the money calls. Thereby, we favor slightly on downside risks as short leg likely to reduce long legs.

Currency Strength Index: FxWirePro's hourly EUR spot index is flashing at 47 (which is bullish), while hourly CAD spot index was at -84 (bearish) at 14:04 GMT. For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex