Macro view:
Q1 GDP shows the economy got off to a solid start in 2016. Non-mining activity is now growing strongly, supported by housing, consumer spending, and strong growth in services exports.
Australia reported a trade gap of AUD1.58 billion in April of 2016, a decrease of 20 percent from a downwardly revised AUD1.97 billion deficit in March, above market estimates. It was the smallest trade deficit since February 2015 as exports rose 1.0 percent to AUD26.73 billion while imports fell 1.0 percent to AUD28.31 billion.
The RBA is likely to keep cash rates on hold in upcoming monetary policy meeting, although we still look for another rate cut in August.
Technical roundup:
Although bull rallies have begun today, but seeing weakness in broader picture to signify long term bear trend's momentum back again.
You can figure out from the monthly chart that the bears have managed to break supports at 79.547 levels, price remaining below EMAs consistently has been the evidence of the robust downtrend, to drop below 79.547 & EMA curves as the strong supply seen at this level for this pair.
This pair has been oscillating between 85.645 and 84 levels as buying momentum is reduced but long term trend seems to be intact.
OTC updates:
We see steady flows of IVs rise of ATM contracts of 1w and 1m tenors
They are creeping up from 13.79% to 15.86% and this has been justified by historical volatilities in spot FX fluctuations (see big real body candles on monthly technical charts).
ATM IVs of 1w expiries are flashing at 20.11% and 16% for 1m tenor.
Traders tend to view the put ratio back spread as a bear strategy, because it employs puts. However, it is actually a volatility strategy.
The implied volatility of 1M ATM put contract is almost close to 16% and it is quite higher side when long term trend is bearish and spikes in previous rallies for short term which is good sign for option writers.
Traders tend to view the put ratio back spread as a bear strategy, because it employs puts. However, it is actually a volatility strategy.
Hedging Strategy:
As we anticipate the underlying currency exchange rate of AUDJPY to make a big move on the downside, preferring to purchase 1M 2 lots of At-The-Money -0.51 delta puts and sell 1W one lot of (1%) In-The-Money put option.
So far we all know that the position uses long and short puts in the ratio, such as 2:1 or 3:2 and so on to maximize returns depending upon risk appetite and returns expectations.
The material has been provided by InstaForex Company – www.instaforex.com