The US dollar Index has stabilized higher as it remains above 87 and seems to have staying power above this key level. The trade balance came out worse than expected, but the FOMC minutes kept the USD afloat due to the determination of the Fed to keep up with inflation if it creeps upward. Overall, news seemed to have a positive impact or reaction for the USD. The volatilities on the short end seemed to have been stable while the longer time periods have seen a bid in anticipation that volatilities have gotten too low. There continue to be many geopolitical tensions that could potentially take the spotlight at any moment and cause volatility for the market. In term of news, PPI will be out on Tuesday along with Capacity Utilization. Wednesday will have the release of CPI, Housing Starts and Building Permits. Friday will have the Leading Indicators and Philadelphia Fed Numbers. All of these numbers should give a clearer picture of inflation and economic activity which should in turn should have great influence on the markets.
<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Option volatilities seem to have found stable footing and are slightly changed from last week. The risk reversals in the EUR/USD reversed course with the EUR puts now higher than the corresponding EUR calls. The 1 month 25 delta risk reversal now has EUR puts trading at a volatility premium of 0.1%/0.30% over EUR calls. The USD/JPY is still trading with the USD puts higher versus USD calls. The volatility premium is 0.0%/0.30% for USD puts over USD calls.
| | 16-Oct-06 | | ||||||
| | EUR/USD | Weekly Change | USD/JPY | Weekly Change | GBP/USD | Weekly Change | USD/CHF | Weekly Change |
| 1W | 6.30% | -0.30% | 6.80% | -1.20% | 6.35% | -0.20% | 7.35% | -0.10% |
| 1M | 6.80% | 0.20% | 7.30% | -0.15% | 6.75% | 0.15% | 7.75% | 0.30% |
| 2M | 7.05% | 0.25% | 7.30% | -0.10% | 6.85% | 0.15% | 7.90% | 0.30% |
| 3M | 7.10% | 0.25% | 7.30% | 0.00% | 6.90% | 0.05% | 7.90% | 0.25% |
| 6M | 7.60% | 0.20% | 7.55% | 0.05% | 7.20% | 0.05% | 8.35% | 0.15% |
OPTION TRADE IDEAS
Below please find some strategies, which depending on your view might be applicable. Please bear in mind that all of these trades can be applied to any of the currency pairs, which may be traded. All barrier levels, strikes, triggers, payouts, and maturity dates can be tailored to each individuals views.
View: The EUR/USD will not move out of the trading range this week.
Trade: Purchase a 1 week EUR/USD Double No Touch option
| Currency: | EUR/USD |
| Spot Basis: | 1.2524 |
| Maturity: | 1 week |
| Barrier 1: | 1.2575 |
| Barrier 2: | 1.2450 |
| Payout: | USD 10,000 |
| Premium: | USD 7,150 |
| Criteria: | Should the spot EUR/USD fail to trade at either of the Barrier Levels prior to expiry, the client will earn the predetermined payout. Should the EUR/USD spot price trade at either Barrier level prior to expiry, the maximum loss to the client will be the Premium paid. |
View: The GBP/USD will grind lower this week.
Trade: Purchase a 1 week GBP/USD Double One Touch option
| Currency pair: | GBP/USD |
| Spot basis: | 1.8605 |
| Barrier 1 : | 1.8900 |
| Barrier 2: | 1.8300 |
| Maturity: | 1 week |
| Payout: | USD 10,000 |
| Premium: | USD 3,800 |
| Criteria: | Should the spot GBP/USD trade at either barrier level prior to expiry, the client will earn the predetermined Payout. Should the GBP/USD spot price fail trade at either Barrier Level prior to expiry, the maximum loss to the client will be the Premium paid |
View: The USD/CAD will continue upwards this week
Trade: Purchase a 1 week USD/CAD One Touch option
| Currency: | USD/CAD |
| Spot Basis: | 1.1380 |
| Maturity: | 1 week |
| Barrier 1: | 1.1500 |
| Barrier 2: | N/A |
| Payout: | USD 5,000 |
| Premium: | USD 2,420 |
| Criteria: |
