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Although we are scaling an NZD short, appending a spot position to augment a digital put of other pairs that are only very low delta now, other NZD crosses have been flattered by the abrupt re-pricing of RBNZ policy a month ago but positions should be cleaner now and NZD hence more vulnerable to a further attrition in global macro confidence.
EURNZD retains upside potential beyond 1.6714 levels, in the wake of the dovish ECB shift and mixed EZ economic data. The next big event is the ECB on 10 April.
In the medium term perspective, the ECB has delayed plans to hike rates and instead initiated further stimulus in the form of cheap bank loans. We target 1.6714 by the end of Q3’2019.
On the flips side, RBNZ is all set for its monetary policy this week for OCR review that may disappoint NZD-bears. On a broader perspective, OCR reviews that are scheduled on this Wednesday, which may disappoint NZD bears with unchanged guidance (developments since the Feb MPS have been roughly neutral). On Thursday, we get to hear from RBNZ Gov. Orr about the new monetary policy regime.
OTC outlook and Hedging Strategy: Please be noted that the positively skewed IVs (implied volatilities) of 3m tenors signify the hedgers’ interests in the upside risks (refer above nutshell). Bids for OTM calls strikes up to 1.68 levels are observed ahead of RBNZ monetary policy.
Contemplating all the above factors, we could foresee the upside risks of this pair. Hence, we advocate 3m (1%) in the money delta call options.
Thereby, in the money call option with a very strong delta will move in tandem with the underlying spot fx.
Alternatively, as we could foresee upside risks in the weeks to come, ahead of RBNZ’s monetary policy this week on hedging grounds, we advocate initiating longs in EURNZD futures contracts of mid-month tenors with a view to arresting further upside risks. Courtesy: Sentrix & Westpac
Currency Strength Index: FxWirePro's hourly EUR spot index is inching towards -168 levels (which is bearish), while hourly CHF spot index was at -77 (bearish) while articulating (at 13:10 GMT).
For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex
