Summary: NBH hiked as expected with 50bps earlier this week and with a statement that was on the hawkish side. EURHUF spot and vols little changed on the highs. Risk reversals and carry also on the highs which makes EURHUF calls rich.
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.
Hungary hiked as expected with 50bps on Tuesday, slowing down from 100bps hikes in the previous meetings. The statement was on the hawkish side confirming the end of the tightening cycle is far away and that the 1 week deposit will continue to rise with 30bps/month.
EURHUF spot little changed after the rate decision and continue to trade at the highs. Vol remains bid with 1 month at 13.0 and risk reversal at 4.0 for topside, both at 2 months highs. HUF carry is also on the highs with 1 month forward trading 225 pips above spot. All the above makes EURHUF calls rich and we like to sell EURHUF calls.
Sell 1 month 410.00 EURHUF call
Receive 250 pips
Alternative
Sell 1 month 420 EURHUF call
Receive 125 pips
Spot ref.: 396.25
You should be aware that in purchasing Foreign Exchange Options, your potential loss will be the amount of the premium paid for the option, plus any fees or transaction charges that are applicable, should the option not achieve its strike price on the expiry date
If you write an option, the risk involved is considerably higher than buying an option. You may be liable for margin to maintain your position and a loss may be sustained well in excess of the premium received.
By writing an option, you accept a legal obligation to purchase or sell the underlying asset if the option is exercised against you; however far the market price has moved away from the strike. If you already own the underlying asset that you have contracted to sell, your risk will be limited.
If you do not own the underlying asset the risk can be unlimited. Only experienced persons should contemplate writing uncovered options, then only after securing full detail of the applicable conditions and potential risk exposure.
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As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
