Cryptocurrency Derivatives Series: Bitcoin Enters Congestion Area, CME Hints Mounting Interest – Stay Positioned Via Bear Calendar Spread
0.75% is a a record low, but don't think for a second the Reserve Bank has finished cutting the cash rate
Regulatory Series on Cryptocurrencies: Bank of England Establishes British Regulations For Facebook’s Libra
FxWirePro: Capitalize on USD/CAD Interim Dips, Short-Tenured Risks Reversals and 3m IVs to Optimize Hedging - Deploy Debit Call Spreads
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Digital Currency Revolution Series: SNB and BIS enter into a pact to explore possibilities and prospects of digital currencies
FxWirePro: Spotlight on Key Driving Forces For Turbulence in Euro-bloc – Deploy 3-Way Straddle To Hedge EUR/GBP
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FxWirePro: BoE to stimulate sterling, potential for oil price risks to cushion loonie - Favour GBP/CAD uncertain bearishness via 3-way straddles
The pound sterling should not suffer too much. An interest rate hike by the Bank of England (BoE) next week is now the consensus opinion in the market. And so the fundamental difference between BoE interest rate policy and ECB interest rate policy is strengthened and made clearer. The market has always ignored the fact that all the current BoE interest rate moves are due to a favourable result of the Brexit process.
While the uncertain interaction between contingent trade war risks and the BoC policy reaction function adds to opaqueness in the rate outlook. The recent time’s policy communication from the BoC emphasized delineation between incorporating realized trade policy impact into its forecasts and policy decisions, and deliberately not taking account threatened but unrealized trade actions (e.g. potential future auto tariffs).
Despite drastic volatility in the energy markets, Western Canada Select Crude continues to trade at $50/bbl that stimulates CAD’s strength. If any headwinds in the form of domestic supply disruptions possibly into September (7.5% domestic daily production), plus pronounced spreads vs elevated WTI prices will limit CAD’s upside from additional oil price support.
Option Strategic Framework:
Please be noted that the positively skewed IVs of GBPCAD of 1m tenors is well balanced on either side (refer below chart), technical trend (both minor & major) and above stated fundamental driving forces of this pair have been indicating perplexities which means hedgers’ sentiments of this pair may head towards any directions but with more potential on downside in the near-term.
Accordingly, we advocate below options strategy that is likely to optimize hedging motive.
Strategy: 3-Way Options straddle versus OTM call
Spread ratio: (Long 1: Long 1: Short 1)
How to execute: At spot reference: 1.7941, initiate long in 1M GBPCAD at the money +0.51 delta call, add one more lot of 1M at the money -0.49 delta put and simultaneously, short 1w (1%) out of the money call with positive theta. The short leg with narrowed expiry (lower side) likely to reduce total hedging cost. Courtesy: Nomura
Currency Strength Index: FxWirePro's hourly GBP spot index is at shy above -17 levels (which is bearish), while hourly CAD spot index is edging higher at 65 levels (bullish) while articulating (at 10:24 GMT). For more details on the index, please refer below weblink: