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Jan 15 - 08:55 AM

EUR/USD - COMMENT-A Value Trade To Protect Against Looming EUR/USD Event Risk

By Richard Pace  —  Jan 15 - 06:47 AM

The FX options market is already aware of the downside risk to EUR/USD nL1N2JQ0F5, but next week could see it increase, along with actual volatility, given some significant events that might warrant protection.

President-elect Joe Biden's inauguration and Janet Yellen's confirmation hearing for U.S. Treasury Secretary might give them the opportunity to comment on future policy.
A showdown in Italian politics nL1N2JQ0OE and a European Central bank meeting, with EU PMIs in the mix, too.

A simple one-week expiry straddle offers the right to buy, or sell EUR/USD at a set rate (strike) for an upfront premium.
It's a volatility play, so holders will offset strike risk by adjusting an opposing cash hedge as the spot market moves.

At 6.7, one-week implied volatility is in line with one-week daily historic volatility, which suggests fair value.
It means that EUR/USD's actual volatility only has to match its past week's performance to cover the premium with once daily cash hedging, while any increase can bring unlimited profit potential.

For more click on FXBUZ

EUR/USD 1-week implied is in line with 1-week daily historic Click here

Refinitiv IFR Research/Market Commentary


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