FxWirePro: Triplet Options Structure to Optimize Shorts Within USD/G10 Bloc

The trading week is off to a very quiet start with little by way of major market moves or calendar-based developments to consider. Ahead, the DXY may remain inherently top-heavy with downside support seen at the 200-day MA (95.333). Structurally, markets may continue to attempt to strike a balance between the weakened state of the USD and the still soggy global macro complex (which typically incites flight to the USD).

The one pushback against selling GBP vs JPY correlation at current market is value, or rather the lack thereof. Implied corrs have already subsided 15% pts. from their local December peak to near 2-yr lows and carry only thin premium over trailing realized corrs. 

Within the GBP-cross universe, somewhat better value resides in GBPAUD options where nominal implied corrs. are 15-20 pts. higher, and which also incidentally ranks second next only to GBP/JPY on long horizon risk-return metrics from corr. selling in above chart (highlighted in blue). 

Unlike GBPJPY however, GBPAUD is not asymmetrically profitable triangle play in calls and puts: Exhibit 5 suggests that owning GBP calls/AUD puts (against selling GBPUSD calls and AUDUSD puts) significantly outperforms owning GBP puts/AUD calls, presumably on account of GBPAUD’s traditional anti-risk sensitivity on the upside (i.e. spot tends to rally sharply in crashes). 

Fortunately, this directional preference suits current tactically bullish GBP views to a tee, hence GBP call/AUD put spreads financed with AUD put/USD call spreads is a viable alternative to our GBPJPY – USDJPY call spread switch for expressing a constructive view on Brexit negotiation outcomes. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly GBP spot index is inching towards -21 level (which is mildly bearish), while hourly USD spot index was at 46 (bullish) while articulating (at 08:44 GMT). 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex