EUR/USD 3m ATM vol remains under pressure after last ECB meeting, while the risk reversal is reaching its most negative level since last summer.

The implied volatility of ATM contracts for 1M-3M expiries of this the pair is flashing below 9.5%.

Delta risk reversals with positive ticks creeping down gradually for next 1W – 1M expiries to signify the hedging positions are well equipped for any abrupt upside risks and downside hedging arrangements over the longer period of time.

The skew appears rich compared to the volatility, strongly suggesting put spread-like structures. The 3m tenor includes the 23 June vote and makes this maturity a natural selection for the hedge.

A euro downside optional strategy will remain exposed for about one month after the outcome, giving the market extra time to digest developments.

At spot ref: 1.1331, good time to buy EUR/USD put ladder with narrow expiries and strikes set at 3M longs in 1.1398/1W shorts in 1.1259/2W shorts in 1.1219.

From almost last one year we've been seeing the pair oscillating within stiff sideway trend (ranging 1.1480 to 1.05 levels).

If you consider long term euro's valuations then you would come across the convergence between spot curve and risk reversals (see spot/risk reversal relation in the diagram).

 A move below parity appears excessive given that the market is already well positioned for Brexit risk and that bullish dollar drivers have lost momentum (the Fed stepping back).

The dollar’s decline is already quite significant, and with EUR/USD close to the high end of its range, the odds are currently favouring new euro shorts regardless of developments in the UK.

The skew is even more pronounced for lower strikes, so we get additional leverage in selling a put strike 1.1219.

The solution optimizing the hedge leverage in a crisis scenario is an OTM put spread with a tight spread between the low and high strikes.

This put ladder structure offers a constant payoff until short expiries and strikes with greater leverage as we added two shorts, but after these expiries spot FX is expected to dip further to perform strategy more effectively.