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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider.
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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money. Losses can exceed deposits on some products.
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FX Trade View: Downside via EURUSD put option FX Trade View: Downside via EURUSD put option FX Trade View: Downside via EURUSD put option

FX Trade View: Downside via EURUSD put option

Trade View 5 minutes to read
Short Term / Sell
John Hardy

Head of FX Strategy, Saxo Bank Group

Summary:  EURUSD is heavy near range support and may push lower still as the Eurozone outlook sours more quickly than the outlook for the US, where the Fed continues to actively tighten. We trade the risk for lower EURUSD levels via a put option, given very low implied volatility.

Instrument: EURUSD put option, strike 1.1200, expiry May 15
Price Target: Spot price below 1.1000
Market Price: 72 pips, or 0.0072 (Spot ref: 1.1320 on Feb 13)

Background:
EURUSD is heavy near range support, with the turnaround in the US Federal Reserve guidance since the hawkish December Federal Open Market Committee meeting unable to engineer a more profound sell-off in the US dollar as the Eurozone outlook has worsened so drastically that the European Central Bank may be forced to consider easing measures at coming meetings while the FOMC is actively tightening. EURUSD may eye new local lows for the cycle, driven chiefly by concerns for the Eurozone economic outlook and ECB being a first mover in bringing new policy accommodation.

As well, given the weakening outlook for global growth, markets may have been a bit premature in celebrating the Fed’s and other central banks’ turn away from a tightening bias as historically, an easing cycle from central banks only arrives at this point in the cycle due to mounting worries of recession and with a backdrop of very weak asset markets. A fresh sell-off in global equity markets could support the US dollar, typically a safe haven from a liquidity angle during times of crisis. A wildcard risk for the euro side of the EURUSD equation is the risk of fresh existential worries driven by populist demands for expanding fiscal stimulus and concerns on sovereign debt funding at the periphery.
 
Parameters:

Entry: 72 pips, or 0.0072 (Spot ref: 1.1320 on Feb 13)
Stop: n/a
Target: Price target: Spot price below 1.1000
Time Horizon: Short-term

  
Chart: EURUSD

The market looks heavy near the ultimate range low posted late last year at 1.1216. Downside optionality looks “cheap” for two reasons. First, it is rather cheap as implied volatilities are quite low relative to the historically range due to the lack of recent volatility in EURUSD and lack of anticipation that anything dramatic is set to happen. EURUSD implied volatility is currently below 6.5% for 3-month options. Second, we have to remember the interest rate carry is rather high for EURUSD and means that the forward price (on Feb 13 with a spot price of 1.1320) is 1.1405 for the May 15 expiry date. 
 
Source: Saxo Bank
Longer-term chart:

On a longer-term chart, traders may note the lack of notable support levels should the support levels below 1.1200 – perhaps the round, psychological levels starting with 1.1000 the most important if the pair finds itself on the way down.
 
Source: Saxo Bank
Management And Risk Description:
Technically, the EURUSD softness points to the range lows as a possible trigger for a more profound move lower in coming months. We take a three month put option position, in the hopes of the price action moving well below 1.1000 over the three month time frame. 

Consider longer dated options and different strike prices for a different risk/reward profile.

Risks: risk to this trade is 100% loss of the amount paid up front for the option premium.



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A compiled overview of Trade Views provided on Home.saxo can be found here (https://www.home.saxo/en-gb/insights/news-and-research/trade-views/report).

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, or any of our other products work, and whether you can afford to take the high risk of losing your money. The value of your investments can go down as well as up. Losses can exceed deposits on some margin products. Professional clients can lose more than they deposit. All trading carries risk.

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All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871.

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It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

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