PLN: We moved MW on euro area weakness. We recently stopped out of our bullish PLN position following disappointing euro area business surveys and further EURUSD downside but remained hedged using below options strategies.
Fundamentally, we remain constructive, believing the currency is now relatively weak compared to the resilient domestic data.
However, the scope for meaningful appreciation will remain limited until EURUSD turns higher, in our view.
CZK: Our favoured OW, holding short in USDCZK and EURCZK. We reckon that CZK remains the strongest reflation trade within CE4.
The bullish stances are driven by our expectation that CNB will surprise more hawkish and hike twice this year and by a strong basic balance of 2.6% of GDP.
The currency screens 5% cheap in our BEER model and 9% cheap in our FEER model. Data momentum is starting to turn, with downside surprises in inflation now mostly behind us. Courtesy: JPM
Derivatives Hedging Strategies:
On hedging grounds, we advocate initiating longs in USDPLN and USDCZK at-the-money -0.49 delta put options of 1m expiries with a view to arresting potential bearish risks (50:50 notional, at spot reference: 3.7199 and 22.1863 levels). Delta measures the change of an option's premium with respect to changes in the currency pair exchange rate. Another way to reckon of Delta is as if it's your outright spot exposure.
Currency Strength Index: FxWirePro's hourly USD spot index is flashing at -35 levels (which is bearish), while articulating (at 13:03 GMT).
http://www.fxwirepro.com/currencyindex.
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