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FxWirePro: Save and preserve ECB officials’ words but unwise to jump the guns by misinterpreting to bid euro longs – Hedge EUR/GBP via call spreads

All hawks eyes are on when will the ECB end its QE programme? While the member of the ECB Executive Board Benoit Coeure is hoping that the additional programme until September might have been the last one. For now, the QE programme seems constructive for EUR and is likely to be one of the reasons as to why the European single currency is largely trading at robust levels. However, the caution is warranted:

1. Our economists expect that Coeure’s hopes will not be realized and that the ECB will be forced to extend its QE programme once again in view of sustainably low inflation levels. And

2. Even an end of the QE programme does not necessarily have to constitute a strong EUR-positive signal. Only if the end of the QE programme is seen as the beginning of the end of the ultra-expansionary ECB policy (i.e. if rate hikes could at least be expected for the distant future) would that be the case. However, our ECB experts do not expect to see that. As a result, we can only put a caution against interpreting Coeure’s words (or similar comments by other ECB officials) as a medium-term recommendation to buy EUR.

We continue to reckon that this is not a particularly bullish backdrop for GBP, irrespective of the recent increase in interest rates and maintain the bearish view although admittedly GBP remains subject to the data flow in the coming weeks.

EURGBP trades a relatively narrow 0.8689 to 0.9032 range through the latter stages of Q4 of 2017. However, the rally through this upper pivot resistance level has increased our conviction for a move towards the 0.8950-0.9025 range highs. Medium-term momentum is positive and has room to extend.

Hence, long a 2m 0.8825 - 0.9150 EURGBP call spread, the positions can be executed at net debit.

This debit call option spread strategy is employed when the options trader reckons that the price of the underlying spot fx would go up moderately in the near term.

Currency Strength Index: FxWirePro's hourly EUR spot index is displaying shy above 71 levels (bullish), while hourly GBP spot index was inching higher towards 61 (bullish) while articulating (at 11:16 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit: 

http://www.fxwirepro.com/invest

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