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EURGBP has been oscillating in a range-bounded major trend, but the pair is extending the run higher in the minor trend, after breaking through short-term range resistance at 0.8865 (refer 1st & 2nd charts). Momentum yesterday suggested a stronger move into our resistance zone, but now is reaching resistance as prices levels are too.
We are, therefore, again wary of at least a corrective pullback from around 0.9000 - 0.9035 levels. If we just keeping pushing through this resistance, 0.9120 is the next resistance region above.
Although the scepticism has been lingering, over the medium term, we are monitoring the reversal from the March 0.9500 highs to determine if it is just a correction before a test of the 2008 highs at 0.9800, or a more meaningful top developed for a return to the 0.8600 to 0.8250 previous range.
As a result, our defensive stance in EURGBP has been dictated by the receding global economic tide, but we cannot ignore that geopolitical and economic risk has been an instrumental factor in these worse macro outturns. This warrants a tactical reduction in our defensive exposure but we uphold our hedging portfolios via 3-way straddles.
Let’s just quickly glance at OTC updates & suitable options strategy:
The positively skewed IVs of 3m tenors are well-balanced, indicating both upside and downside risks, more bids are observed for OTM call strikes up to 0.92 levels.
While existing EURGBP bullish neutral risk reversal setup across all tenors substantiates upside risks.
According to the OTC FX surface, 3-way options straddle versus ITM puts seem to be the most suitable strategy for EURGBP contemplating all above factors.
Options Strategy: The strategy comprises of buying at the money +0.51 delta call and at the money -0.49 delta put options of 2m tenors, simultaneously, short (1%) ITM put option of 2w tenors. The strategy could be executed at net debit but with a reduced trading cost.
Hence, on hedging as well as trading grounds, initiate above positions with a view of arresting potential FX risks on either side but slightly favoring short-term bearish risks. Courtesy: Sentry, Saxo & Lloyds
