The GBP/USD currently looks oversold by all measures, and we suggest entering a 2W GBP/USD 1:2 ratio call spread to position for a possible near-term correction higher. We doubt that we will see a trend reversal and do not see much near-term potential for GBP/USD above 1.52. We suggest buying 2W GBP/USD 1.5000 call option, and selling 1.5100 call option with a double notional at zero costs (indicative, spot ref.: 1.5000).
The commodity currencies (AUD, CAD, NZD and NOK) also trade with considerable misalignments versus USD relative to model estimates. We suggest utilizing the positive skew and positive carry and enter 1M USD/NOK risk reversal to position for a move lower in USD/NOK. Correlation between USD/NOK and EUR/USD is high (negative), and a short USD/NOK position could also be considered as an alternative to a long EUR/USD position. 1M USD/NOK risk reversal can be entered at zero costs by selling 5.7850 call and buying 5.6600 put option (indicative, spot ref.: 5.7160).
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