FxWirePro: EUR/AUD’s rallies follow trendline support; option straps ensure upper biased hedging

Technical Glance:

The pair has breached trendline support at 1.4677 as per our prediction with an "inverted hammer" formation. After a downtrend, the formation of an inverted hammer is bullish because prices hesitated their move downward by increasing significantly during the day and this has now confirmed in yesterday's rallies and currently holds trendline support at 1.4750. 

Currency Option Strategy:

For those who expect equal momentum on both the sides but slightly bullish biased on Euro side, on hedging grounds option straps are recommended. Unlike spreads, combinations allow adding both calls and puts at a time in our strategy.

So, Buy 15D At-The-Money delta put option and simultaneously short 2 lots of 15D At-The-Money delta call options.

It involves buying a number of ATM puts and double the number of calls. The strap is more of customized version combination and more bullish version of the common straddle.

Hence, any hedger or trader who believes the underlying currency is more likely to surge upside can go for this strategy.

Maximum returns can be achievable when the underlying exchange rate makes a strong move either upwards or downwards at expiration but with greater gains to be made with an upward move. Cost of hedging would be Net Premium Paid + brokerage/commission paid.