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Summary: RBA Lowe's dovish speech had AUDUSD break out of the technical triangle formation, which now opens for a move lower in spot. Volatility is just marginally higher on the break and we good opportunity to pick up some AUD put options.
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.
Better than expected Aussie job data today was ignored by the market. Instead focus was on RBA Lowe’s speech. Lowe opened up for buying bonds further out on the curve and signaled for a rate cut. The dovish comment had AUD break out of the triangle formation with 0.7000 as the next support level.
Vols trades just marginally higher after the move with 1 week up 0.5 and 1 month up 0.2 on the day. Both vol and risk reversal still trades at relative low levels and there should be ample upside in both if spot would break the 0.7000 level.
We like to buy either short dated puts for a move down to 0.7000 or buy lower delta downside options a bit further out on the curve to benefit from a pick up in vol and risk reversal if spot would break down below 0.7000.
Buy 1 week 0.7075 AUDUSD put
Cost 27 pips
Buy 3 month 0.6800 AUDUSD put
Cost 55 pips
Spot ref.: 0.7110
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