FxWirePro: EUR/USD puzzled between Yellen’s and Draghi’s monetary policy speculation – strips serve safe haven

The spot FX EURUSD is flashing up at 1.1268 as investors were now looking ahead to a speech by Fed Chair Janet Yellen later in Thursday for additional clarity on the bank's decision last week to leave interest rates on hold.

The EURUSD remained supported after ECB's Draghi mentioned on Wednesday that it was too early decide whether or not to add stimulus measures.

While ATM volatility and delta risk reversal, divulge that the fact that pair would experience little downside pressure in next 1-6 months future with considerable volatilities. The higher side volatility of EURUSD ATM contracts for next 3 months is projected. Although trend is puzzling on either sides the bearish momentum is likely to hold on. Huge volatility is expected over next 1-3 months.

On hedging grounds we recommend buying at the money 3D 0.51 delta call, 1 lot (size 100,000) and two lots of at the money 5D -0.48 delta puts on the other hand. You aren't sure of the direction though, but you favor the downside. Our analysis tells you a southward big move is on the table. You enter a long straddle trade with an extra put in hopes of a move down.

As the markets still expect rate hike possibilities lingering around dollar and Fed Chair Yellen today would almost certainly use the press conference to reinforce the message that the FOMC expects to increase rates only gradually and that these will likely peak at a low level.

If the strategy gets the move you expect towards down, you'll profit more. If the pair spikes up, that's fine too as it is either going to be hedged or still profits are achievable but you'll need a pretty big move just to get back to breakeven.