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The Jackson Hole Symposium begins today but markets may have to wait until tomorrow to get the noteworthy speeches by both ECB President Mario Draghi and Fed President Janet Yellen. There may be quite a few thought-provoking interviews at the fringes though to look out for.
The euro zone economy also appears to be growing at a strong rate in summer. This is at least what the purchasing managers' indices (PMIs) suggest. The manufacturing index managed to make up for its loss in July (57.4 after 56.6), contrary to expectations. However, the renewed decline of the services PMI (54.9 after 55.4), which used to be closely correlated with the year-on-year rate of GDP in the past, suggests that the economy has reached its peak.
While EURUSD remains 1.1792-1.1823 overnight range. Likely to hover in sideways ahead of Yellen/Draghi tomorrow. Large options set to constrict today’s range. Total €4.13bn maturities rolling off scattered around 1.1660/75, 1.1750, 1.1835/50.
The EURUSD appreciation is now going to be slower than it has recently been, and the skew is still undecided whether volatility should rise on the back of a higher or lower spot. As such, we do not focus on intermediary vega gains to favor instead a buy-and-hold structure benefiting from the passage of time, as the timing of euro upside is less certain.
Mechanics: Buy EURUSD 3m ladder, strikes 1.19/1.21/1.24 Indicative offer: 0.35% (vs 1.15% for the call strike 1.19 only, spot ref: 1.1785).
Risks profile: See unlimited risk above 1.2550, the above structure exposes investors to unlimited risks if the EURUSD trades above 1.2550 at the 3m expiry, a level not seen since end 2014. Courtesy: JP Morgan
