Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
OTC Derivatives Trading
Summary: USDZAR continues to trade higher with vols following spot higher, 1 month USDZAR vol up 0.75 from Friday and up 3 vol from the lows in June. Risk reversals are not following spot and vol higher and trades unchanged which makes USDZAR put relative expensive. Spot trades above the 200 dma for the first time since October, the 200 dma should now act as a first support on the downside. We like to sell short dated USDZAR puts with strikes around the 200 dma.
Saxo Bank publishes two weekly FX Options Market Update reports covering changes and updates on the FX Options and FX Volatility market. They describe changes in FX volatility levels, risk premium and ideas how to trade based on these.
FX continues to trade in it’s summer lull with just a few exceptions, spot is mainly range trading and vol trades at or close to YTD lows. ZAR still face a lot of headwind and USDZAR is up close to 12% from its lows in June and hit 15.00 yesterday for the first time since end of March. Positioning still long ZAR which could add to the weakness as the market starts to cut their positions.
Vols trades higher in line with the higher spot, 1 month is up 0.75 vol from Friday and 3 vol from the lows in June. Risk reversals are not following higher and trades around the same levels as they done from the start of the year. 1 month risk reversal trades at 2.7 and has been trading between 2.5 and 3.0 for most of the year.
We see more rom for USDZAR to move higher and like to sell short dated USDZAR puts with the high vol and relative low risk reversal which makes the puts look over valued.
Spot trades above the 200 dma (14.7570) for the first time since October, this should act as a first support on the downside and comes in around the same level as the highs from mid-July.
Sell 1w 14.7500 USDZAR put
Receive 420 pips
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