Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Trader Strategy
You can access both of our platforms from a single Saxo account.
Looking for EURUSD downside via put options
Trade View 5 minutes to read
Short Term / Sell
John J. Hardy
Global Head of Trader Strategy
Summary: EURUSD is heavy near range support and may push lower still as the Eurozone outlook sours more quickly than the outlook for the US, where the Fed continues to actively tighten. We trade the risk for lower EURUSD levels via a put option, given very low implied volatility.
Instrument: EURUSD put option, strike 1.1200, expiry May 15
Price Target: Spot price below 1.1000
Market Price: 72 pips, or 0.0072 (Spot ref: 1.1320 on Feb 13)
Background:
EURUSD is heavy near range support, with the turnaround in the US Federal Reserve guidance since the hawkish December Federal Open Market Committee meeting unable to engineer a more profound sell-off in the US dollar as the Eurozone outlook has worsened so drastically that the European Central Bank may be forced to consider easing measures at coming meetings while the FOMC is actively tightening. EURUSD may eye new local lows for the cycle, driven chiefly by concerns for the Eurozone economic outlook and ECB being a first mover in bringing new policy accommodation.
As well, given the weakening outlook for global growth, markets may have been a bit premature in celebrating the Fed’s and other central banks’ turn away from a tightening bias as historically, an easing cycle from central banks only arrives at this point in the cycle due to mounting worries of recession and with a backdrop of very weak asset markets. A fresh sell-off in global equity markets could support the US dollar, typically a safe haven from a liquidity angle during times of crisis. A wildcard risk for the euro side of the EURUSD equation is the risk of fresh existential worries driven by populist demands for expanding fiscal stimulus and concerns on sovereign debt funding at the periphery.
As well, given the weakening outlook for global growth, markets may have been a bit premature in celebrating the Fed’s and other central banks’ turn away from a tightening bias as historically, an easing cycle from central banks only arrives at this point in the cycle due to mounting worries of recession and with a backdrop of very weak asset markets. A fresh sell-off in global equity markets could support the US dollar, typically a safe haven from a liquidity angle during times of crisis. A wildcard risk for the euro side of the EURUSD equation is the risk of fresh existential worries driven by populist demands for expanding fiscal stimulus and concerns on sovereign debt funding at the periphery.
Parameters:
Entry: 72 pips, or 0.0072 (Spot ref: 1.1320 on Feb 13)
Stop: n/a
Target: Price target: Spot price below 1.1000
Time Horizon: Short-term
Chart: EURUSD
The market looks heavy near the ultimate range low posted late last year at 1.1216. Downside optionality looks “cheap” for two reasons. First, it is rather cheap as implied volatilities are quite low relative to the historically range due to the lack of recent volatility in EURUSD and lack of anticipation that anything dramatic is set to happen. EURUSD implied volatility is currently below 6.5% for 3-month options. Second, we have to remember the interest rate carry is rather high for EURUSD and means that the forward price (on Feb 13 with a spot price of 1.1320) is 1.1405 for the May 15 expiry date.
The market looks heavy near the ultimate range low posted late last year at 1.1216. Downside optionality looks “cheap” for two reasons. First, it is rather cheap as implied volatilities are quite low relative to the historically range due to the lack of recent volatility in EURUSD and lack of anticipation that anything dramatic is set to happen. EURUSD implied volatility is currently below 6.5% for 3-month options. Second, we have to remember the interest rate carry is rather high for EURUSD and means that the forward price (on Feb 13 with a spot price of 1.1320) is 1.1405 for the May 15 expiry date.
Longer-term chart:
On a longer-term chart, traders may note the lack of notable support levels should the support levels below 1.1200 – perhaps the round, psychological levels starting with 1.1000 the most important if the pair finds itself on the way down.
On a longer-term chart, traders may note the lack of notable support levels should the support levels below 1.1200 – perhaps the round, psychological levels starting with 1.1000 the most important if the pair finds itself on the way down.
Management And Risk Description:
Technically, the EURUSD softness points to the range lows as a possible trigger for a more profound move lower in coming months. We take a three month put option position, in the hopes of the price action moving well below 1.1000 over the three month time frame.
Consider longer dated options and different strike prices for a different risk/reward profile.
Consider longer dated options and different strike prices for a different risk/reward profile.
Risks: risk to this trade is 100% loss of the amount paid up front for the option premium.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: The ride just got rougher
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
China Outlook: The choice between retaliation or de-escalation
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
Commodity Outlook: A bumpy road ahead calls for diversification
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX outlook: Tariffs drive USD strength, until...?
John J. Hardy
Global Head of Trader Strategy
-
Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
Disclaimer