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The ECB’s Draghi highlighted increased downside risks on a host of uncertainties and near term growth is expected to be weaker than previously expected.
The euro made a new low for 2019 at 1.1304 on bets that the European Central Bank would, at its governing council on Thursday, deliver a downbeat economic outlook. With the ECB downplaying recession risks, this has pushed out rate hike expectations into 2020.
The European Central Bank held its benchmark refinancing rate at 0 percent on January 24thand reiterated it expects key interest rates to remain at record low levels at least through the summer of 2019. The central bank brought to an end its €2.6 trillion bond purchase scheme last month but said it will keep reinvesting cash from maturing bonds for an extended period of time.
OTC Updates and Options Strategies:
EURUSD 3m positively skewed IVs have been signaling downside risks
Skews stretched towards OTM put strikes signifies hedgers interest in the further bearish risks.
To substantiate these indications, we observe the fresh bids to mounting negative RRs in the 1m coupled, while bearish neutral RRs in the longer tenors remains intact which is in line with the above-stated bearish scenarios.
All these indications coupled with the fundamental news and the underlying scenarios are attractively appealing put holders. Contemplating all these factors, we advocate below options strategy.
The strategy: Initiate long in 2 lots of EURUSD at the money -0.49 delta put options of 3M tenors. Dubious bulls can also deploy 1% in the money puts with attractive delta. Thereby, in the money put option with a very strong delta will move in tandem with the underlying.
Alternatively, shorting futures of mid-month tenors are also advocated with a view of arresting further potential slumps. Writers in a futures contract are expected to maintain margins in order to open and maintain a short futures position. Courtesy: Sentrix, Saxobank
Currency Strength Index: FxWirePro's hourly EUR spot index is inching towards -92 levels (which is bearish), while hourly USD spot index was at -6 (neutral) while articulating (at 08:17 GMT).
For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex
