U.S. Treasury Yields Expected to Decline Amid Cooling Economic Pressures 
U.S. Stocks vs. Bonds: Are Diverging Valuations Signaling a Shift? 
Bank of England Set to Hold Interest Rates as Inflation Risks and Iran War Impact Loom 
US Futures Rise as Investors Eye Earnings, Inflation Data, and Wildfire Impacts 
Kevin Warsh Advances Toward Fed Chair Role Amid Political Tensions 
Wall Street Analysts Weigh in on Latest NFP Data 
Stock Futures Dip as Investors Await Key Payrolls Data 
Fed May Resume Rate Hikes: BofA Analysts Outline Key Scenarios 
Eurozone Recession Risks Rise as Middle East Conflict Threatens Growth, ECB Official Warns 
Mexico's Undervalued Equity Market Offers Long-Term Investment Potential 
RBA Raises Interest Rates to 4.35% Amid Rising Inflation Risks and Middle East Tensions 
Japan Inflation Expectations Rise as BOJ Rate Hike Timing Faces Uncertainty 
ECB Signals Possible Interest Rate Move if Inflation Outlook Fails to Improve 
South Korea Central Bank Signals Cautious Policy Amid Inflation and Middle East Tensions 
China's Refining Industry Faces Major Shakeup Amid Challenges 
Paraguay Holds Interest Rate at 5.5% as Inflation Remains Stable Amid Global Uncertainty 
Fearful that investors might be losing confidence in the ECB’s ability to bring inflation back up to its goal, policymakers have hinted that they are prepared to increase stimulus measures.
The first port of call is expected to be a potential change in the ECB’s rates guidance at this week’s (25 July) meeting, which would pave the way for interest rates to be cut by as much as 20bps in September, possibly with the introduction of tiering.
The bar to restarting QE is higher, but a resumption of net asset purchases could begin later in the year. A relaxation of self-imposed buying limits and/or a shift towards more corporate bonds would create more headroom.
A rate cut on Thursday or a signal of an earlier start to QE in September are possibilities but are not considered to be the most likely outcomes.
On the economic surface, no doubt the ECB will tolerate a few months waiting time for the data to improve, but the market will likely want to see an improvement pretty soon. If that does not materialize but if instead economic data disappoints over the coming days and weeks the market could have EURAUD a brief look below 1.58 levels in the short-term and aim for the 1.6140 mark medium term.
OTC Indications and Options Strategy: Please be noted that IV skews of EURAUD are stretched on either side, the positively skewed IVs of 3m tenors are signifying more hedging interests in both bullish and bearish risks. But more bids for OTM calls of this tenor indicate that the underlying spot FX likely to spike up to 1.64 levels and bids for OTM puts show 1.55 levels.
Contemplating fundamental and OTC factors as explained above, although it is sensed that all chances of Aussie dollar looking superior over Euro in the near term and vice versa in the medium-term future; accordingly, we advise to hedge the puzzling swings through below options recommendations.
The execution: Spot reference: 1.5921 levels, buy 2 lots of at the money 0.51 delta call option of 3m tenor and simultaneously, buy at the money put option of similar expiries. The option strap is a more customized version of straddles but instruments slightly biased bullish risks.
Huge profits achievable with the strip strategy when the underlying currency exchange rate makes a strong move either upwards or downwards at expiration, with greater gains to be made with a downward move.
Hence, any hedger or trader who believes the underlying currency is more likely to slide downside can go for this strategy. Cost of hedging would be Net Premium Paid + brokerage/commission paid. Courtesy: Sentrix & Lloyds
