6 June, 2016
Market focus to remain on 23 June referendum, this week is devoid of policy news but, of course, the markets will continue to follow closely the news on the forthcoming 23 June referendum.
Manufacturing output looks set to stumble again and the RICS housing survey should confirm the trend of cooling price pressures.
Aussie prints upbeat trade balance numbers and GDP (QoQ), trade deficit has been contracted from previous -1.97B to the current -1.58B, while GDP on quarter in the March of 2016 has been expanded 1.1% from the previous prints of 0.7%, whereas U.K. construction PMIs have missed the estimates, actual 51.2 versus forecasts at 51.9.
The monetary policies from RBA tomorrow and BoE in next week are likely to be unchanged, but we reckon that UK referendum is likely to add volatilities in the FX markets post event.
BoE's rate decision would be released next week which is likely to remain unchanged but the potential Brexit event keeps adding more pressures on sterling. But referring to above diagram for IVs of various tenors in FX options owing not only to the referendum but also the U.K's interest rate speculations.
With resultant effects, the GBPAUD cross is anticipated to depreciate further, most likely towards 1.93 levels in the near terms.
Since OTC markets seem to be highly turbulent with an extremely bearish environment post-Brexit decision, IVs for 1M contracts are expected to spike (tad above 19%). This would be good news for long-term option holders contemplating the prevailing bearish environment but more number of longs in ATM delta puts would ensure the reasonable probabilities in underlying exposures.
To factor in the weakness in this pair as we could see reasonable IVs even in next 1-3m expiries, we recommend capitalizing more on bearish signals both fundamentally as well as technically, employing OTM longs matching with ATM longs to construct back spreads that likely to fetch positive cash flows.
Please be sure that a large move in the underlying should be allocated with longer tenor (targets set below 1.93 levels or 1.8838 levels). This should be of greater concern than doing the spread for reducing debit.
So, here goes the strategy this way, go long in 2 lots 1M ATM -0.49 delta puts, long in 2M (1%) OTM -0.36 delta put, and simultaneously short 1W (1%) ITM shorts, the spread is to be executed in the ratio of 3:1with net delta at around -0.72
The delta of the strategy is at 72%, which means there is more likelihood of expiring ITM, since we are certain about our research, we preferred 1 lots of extra long of slightly OTM strikes in our Put Ratio Back Spread.
Major resistance - 9815 (90 4H EMA). The index has broken psychological resistance at 9800 and jumped till 9812 at the time of writing...
Major support - $1292 (200 HMA). The yellow metal has once again recovered after making low of $1305. It is currently trading around $1318.91. In hourly chart gold is trading slightly above Tenkan-Sen ($1315.56) and Kijun-Sen ($1313.62)...
Major support - $1264 (21 day EMA). The yellow metal has declined drastically after fear of Britain leaving the EU eases. It is currently trading around $1265. Gold should close below $1264 (21 day EMA) for further weakness...
Short term trend - Bullish. Major resistance- 94.60 ( trend line joining 95.90 and 95.64). Major support - 94 (4H Kijun-Sen). US dollar index has broken major trend line resistance at 94.60 and jumped till 94.72...
The German 10-year bund yields fell to a new record low on Wednesday, after testing its 2015 low of 0.05 percent yesterday, are likely to test zero as soon as this week, especially if the 10-year US Treasury yield finally breaks through 1.70 percent mark...
The United States May consumer sentiment rose, although lower than expected on prospects of an economic rebound as cheap gasoline, low interest rates and recovery in stocks raise hopes in the minds of the US consumers...
Kiwi bears relentless amid risk-off sentiment persisting in the markets, both Asian equities and oil prices trading in the red. NZD/JPY extending overnight slump, breaks major support at 73.80, is on track to test channel base support at 72.30...
The German long-term bunds slumped on Thursday as investors cooled on safe-haven assets after FOMC April meeting minutes from the U.S. Federal Reserve’s strengthened bets of an interest rate hike in June...