Foreign exchange traders can use a simple option strategy to insure against a bigger EUR/USD drop in coming sessions, as the euro remains vulnerable to downward pressure.
The Federal Reserve on Wednesday unveiled its biggest rate hike since 1994, leaving the European Central Bank in its wake. nL1N2Y12O3 This increases the likelihood of an eventual EUR/USD slump to parity, a level FX markets have not seen since December 2002.
A three black crows candlestick pattern that formed on the EUR/USD daily chart - three large black candles in a row last Thursday, Friday and on Monday - highlights the underlying bearish technical outlook.
Those who want to insure against a EUR/USD fall can buy a one-week 1.0400 EUR put option at a cost of 58 pips, priced with spot at 1.0400.
Profit potential is unlimited if spot is below the 1.0342 breakeven point at the June 23 expiry, while losses are limited to the premium paid.
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