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Glance at Economic Indicators: The August Eurozone PMIs are observed for evidence of whether activity in the region is picking up. So far, this year, European economic growth has disappointed and the July PMIs painted a mixed picture, with the manufacturing index up but the services measure down.
However, the August German ZEW survey was upbeat, showing a rise in both current conditions and expectations. We expect the PMIs today to have also posted rises in August, but still below their levels of last year.
Looking forward, manufacturing PMI in Germany prints at 56.1 versus against consensus at 56.5, previous 56.9 and is projected to be 54.90 by the end of this quarter. Whereas, Service PMI number upbeats forecasts, actual at 55.2 versus forecasts and previous flashes at 54.3 and 54.1 levels respectively.
Elsewhere, France produces upbeat PMIs, actual manufacturing and service PMIs post 53.7 and 55.7. Manufacturing PMI in France is expected to be 54.60 by the end of this quarter.
OTC Outlook:Please be noted that the positively skewed IVs of EURUSD of 1m tenors signify the hedging interest of bearish risks.
While RR numbers of 1w expiries show mild bullish shift in the short-term, whereas bearish risk sentiment remains intact in the long-run (refer long-term risk reversal numbers).
Well, contemplating above-stated driving forces and OTC indications, options strips strategy is advocated on both trading as well as hedging grounds. The options strips strategy which contains 3 legs needs to be maintained with a view to arresting price downside risks.
Option Strategy: Options Strips
Combination ratio: (2:1)
Rationale: Considering the bullish (in near-term) and bearish technical environment (in long-term) and most importantly, the skews in the sensitivity tool indicate hedging sentiments for the bearish risks, these risks are coupled with bearish risk reversal numbers.
The execution: Initiate long in 2 lots of EURUSD at the money -0.49 delta put options of 1M tenors, go long 1w at the money +0.51 delta call option simultaneously.
The strategy can be executed at net debit with a view to arresting FX risks on both sides and likely to derive exponential returns but with more potential on the downside.
Currency Strength Index:FxWirePro's hourly EUR spot index is inching towards 95 levels (which is bullish), while USD is flashing at 15 (which is absolutely neutral), while articulating at (10:40 GMT). For more details on the index, please refer below weblink:
