FxWirePro: EUR/NZD upside traction seems edgy on RBNZ and ECB minutes - Bid 3m IV skews and long hedge via knock out spreads

On the ECB front, markets may have to contend with increased central bank speak, with scheduled appearances from Monday-Thursday, starting with Constancio (1300 GMT) and Praet (1645 GMT) today. Draghi’s appearance on Wednesday may be noteworthy, while ECB meeting minutes are due on Thursday. This week, watch for any references to global trade tensions (and its impact on the EZ economy), although attention may remain more focused any potential signaling with respect to the ECB’s forward guidance for the coming months.

On the flip side, the RBNZ outlook (on hold throughout 2018) is anchoring short-maturity interest rates and should keep 2yr swap rates in a 2.10% to 2.50% range, as long as inflation remains below 2%. 

Please be noted that 3m EURNZD IV skews have been indicating hedging sentiments for the bullish risks, positively skewed IVs upto 1.73 levels.

While we pair EUR vs NZD to neutralise the risk to EURUSD from a further repricing of the Fed. The RBNZ is an unlikely candidate to signal tighter policy as the slowdown in migration intensifies the downturn in housing and argues against a policy response to upside inflation risks from minimum wage increase etc. The 3m window KO halves the premium compared to a digital call.

Long a 6m 1.80 EURNZD digital call with a 3m 1.80 window KO. Paid 17.5%. Marked at 19.04%.

Currency Strength Index: FxWirePro's hourly EUR spot index has shown -52 (which is bearish), while hourly NZD spot index was at 80 (bullish), USD at 96 (bullish) while articulating at 10:05 GMT. For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex

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