FxWirePro: Short calls on job in NZD/USD calendar spreads, far month contracts stronger on 6-year lows

As we anticipated earlier that the pair was to experience short term weakness and calendar spread was recommended on 24th August, now look at their effects in weekly and daily charts but probably to show moderate strength in medium terms which is signaling in monthly chart.

The pair is holding psychological levels of 6 years lows at 0.61952 with an inverted hammer pattern candle that was occurred on weekly chart exactly at 0.6587. RSI is attempting to converge rising prices (current RSI is trending at 28.5578) while %K line crossover below 20 levels signifies oversold pressures but not a certain buy at this juncture.

On data front, Kiwis trade balance healthier than forecasts at -649 million, while inflation remains with forecasts at 1.9%, on the flip side, RBNZ Deputy Governor Spencer said surging Auckland house prices pose an increased risk to NZ's financial stability but the RBNZ can't raise interest rates to curb demand.

Hedging framework:

The implied volatility for next month ATM contracts of NZDUSD pair is seen at 14.79%, which is comparatively higher in APAC currency baskets except AUDUSD. Our shorts on 15D 1% OTM calls are performing well enough so far as the NZDUSD is dropping its prices, even if it continues to drag then this portfolio can be rest assured as the short call would take care of this. Thereafter, the jobs of 60D long call would begin. As the volatility near month ATM contracts of NZD/USD ATM contracts is to perceive at 14.79% which is still quite on higher sides, deploying customized calendar combination using ATM call options have been more suitable considering above technical reasoning.