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Forex Options Daily Strategies - July 5th 2004
EUR/USD: Buy 1-week straddle and trade the delta.
Yesterday the FOMC delivered the expected 25bp hike and the following price action has been relatively dull, still stuck in tight range.
Consequently the whole curve is under pressure. 1, 3 & 6-month maturities are trading 0,20% lower compared to yesterday. Market seems to be positioned flat to small long in short-dated options going into the NFP number tomorrow, hence front-end drifting lower together with the rest of the curve.
We believe that actual volatility will outperform the 1-week implied and therefore suggest buying the 1-week straddle and trade the delta (gamma).
Barries: 1,1800 ; 1,2300
The cross was lifted ahead of FOMC to as high as 109,60 and EUR/JPY 133,40. However post a strong Tankan number JPY rose significantly against other majors and front-end vols went well bid signalling that market is short gamma below the 108,00 handle.
Longer dated vols has agressively been sold lower over the last month. The 6-month & 1-year maturity is trading 0,40& & 0,35% lower compared to last week and 1,05% & 0,80% compared to last month. The 6-month implied maturity is trading at a 1,20% discount vs. actual whereas the 1-year is app. flat.
Barriers: 110,00 ; 107,00 ;106,50
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