The ECB has indicated a extra relaxation in monetary policy at its upcoming meeting day after tomorrow. But during December's under-deliverance highlights the risk of another disappointment, the deteriorating economic outlook should persuade the Governing Council to be bolder this time. We expect both a 20bp cut in its deposit rate and a €20bn expansion of its monthly asset purchases.

On the flip side, AUD seems adjusting higher after RBA's unchanged monetary policy at 2.0%. The statement's description of the AUD was little changed, saying "the exchange rate has been adjusting to the evolving economic outlook."

We continue to expect the RBA to stay on hold, despite its easing bias. Indeed, low inflation conditions suggest that the central bank would be more open to cutting rates if there were a deterioration in economic conditions, particularly in the labour market.

However, we believe that Australia's low potential growth rate of 2.5% helps to explain the underlying strength in labour markets despite sluggish GDP growth.

The labour market report for February is scheduled for release on 17 March to assess whether the downside surprise in the January print was due to volatility.

Hedging Frameworks:

Keeping above fundamental aspects into consideration, AUD is likely to gain against euro in the weeks to come, but any upswings in abrupt should be capitalized as writing opportunity so as to reduce the hedging cost.

Most importantly, 1W ATM IVs are spiking higher above 18%, volatility smiles most frequently show that traders are willing to pay higher implied volatility prices as the strike price grows aggressively out of the money.

So, here goes the recommendation this way, at current spot FX is trading at 1.4837, since we expect more dips extending below 1.48 levels in near terms, aggressive bears can initiate strategy using ATM puts.

But unlike a simple naked puts, backspreads have an extra long that has not only leveraging effects, a short option at a lower strike that caps your reward but also reduces the net cost of the trade.

So, the recommendation for now is to go long in 2W ATM -0.49 delta put, long in 1M (1%) OTM -0.39 delta put and simultaneously short 1W (1.5%) ITM put with positive theta..

As the strikes have been narrowed, the profit potential is greater, so that the ratio needed is also lower to profit on underlying movement.