Today, EURNZD breaks above 1.5015 levels (i.e.7-DMA) expanding range it has resided in for the past few months but we reckon these upswings would unlikely to sustain the move, leaving it in a neutral state for the week ahead.

A reminder of ECB’s primary objective highlights why, with credit demand and growth so low, ECB has extended its QE. Core inflation, despite the rebounding of headline CPI, is stagnating under 1%, rather than pushing towards 2%.

Although Draghi gave a more neutral economic outlook, he stressed that risks are mostly to the downside. The lack of any core inflation will keep ECB QE firmly in place, resulting in further downward pressure on the EUR.

Eurozone Dec inflation will be released early in January. On 21 Dec, ECB’s Bulletin will provide further assessments of EU growth and risks. Monte dei Paschi’s refinancing or bail-in deadline is 31 Dec.

In the medium to longer term perspective, the credit, and political risks should weigh on the EUR. There are Dutch, French and German elections in 2017, and Italy's banking system is fragile. EURNZD should remain below 1.5292 levels.

Thus, capitalizing on momentary gains in EURNZD, we maintain the following FX hedging portfolios via option spreads: Diagonal Put Spread (DPS)

We’ve considered this option strategy with shorts in 2w (1%) ITM put with positive theta or closer to zero favouring ongoing upswings that could fetch premiums so as to reduce the hedging leg on long side, simultaneously, buy 1m (0.5%) OTM put option; the strategy is to be executed either at net credit or at nill cost.