Busy week ahead, we kicking off with ECB today and follow up with US CPI tomorrow and round off with FED in a week. EURUSD spot has been stuck around 1.0700 for the last couple of weeks and we could probably see spot break out and start move again with all the events lined up for the next week. ECB is first out, market expect rates to be left unchanged with the first hike in July. The market is pricing around 120bps hikes in the 4 meetings from July to end of year so the focus for this meeting will be if a 50bps hike is in the cards for the next meeting.
EURUSD O/N trades around 20 vol, approximately 90 pips breakeven, which is at the high end of the past 10 meetings. But then it also include the US CPI tomorrow which also has a high event risk priced in. 1 week EURUSD trades around 11.25 vol, approximately 140 pips breakeven, which include all three events.
We think we could expect a choppy market over the next week and EURUSD could take off in either direction if all events align. We prefer to buy 1 week over O/N and either buy a straddle and trade spot around the strike or buy a directional option on either side.
Buy 1 week 1.0715 EURUSD call
Buy 1 week 1.0715 EURUSD put
Cost 136 pips
Buy 1 week 1.0815 EURUSD call
Cost 32 pips
Buy 1 week 1.0615 EURUSD put
Cost 31 pips
Spot ref.: 1.0715