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Jan 10 - 05:55 AM

EUR/USD - COMMENT-A Simple Strategy To Protect EUR/USD's Downside

By Martin Miller  —  Jan 10 - 03:50 AM

FX traders can use a simple option strategy to cover a rush of funds into the U.S. dollar at the expense of the euro.

Seasonal trends show the euro has fallen against the dollar in January in 14 of the past 22 years, meaning the chances of EUR/USD ending the month down is quite high.
EUR/USD has to close below the 1.1369 EBS data open at the end of the month to register another negative January.

The Federal Reserve, now expected to raise interest rates in March and begin reducing its asset holdings soon afterward, should provide the dollar with an edge over the euro in the near-term. nL1N2TL1UH.
Fourteen-month momentum remains negative, reinforcing EUR/USD's long-term bearish market structure.

Traders who want to protect against a EUR/USD fall can buy a two-week 1.1325 EUR put option at a cost of 41 pips, priced with spot at 1.1330.
Profit potential is unlimited if spot is below the 1.1284 break-even point at the Jan.
24 expiry.
Losses are limited to the 41-pip premium, making this type of downside cover well worth the price paid.

For more click on FXBUZ


EUR/USD Seasonality Chart: Click here

Monthly Chart: Click here

Fenics Option Pricing Grid: Click here

Source:
Refinitiv IFR Research/Market Commentary

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