Forex Investment and Currency Trading

As of London open, with recent USD bearishness, the relatively affordable levels of GBP vols combined with spot approaching 2.0000 presents an opportunity to seek topside gains in GBP if spot breaks through this psychological level.
Current 200-day MA comes in around 1.9961, a close above this level should signal increased bullishness on GBPUSD. Currently GBP risk reversals favor GBP puts but with increased USD bearishness expressed in the option market, this should be viewed as an opportunity to cheapen a GBP bullish strategy.
A suggestion on the vanilla side to compliment this USD bearishness is to buy some 1-month 25 delta GBP Calls [...]

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Although G8 might have disappointed USD bulls with the lack of commentary on currencies, recent USD-bullish rhetoric from Paulson and Bernanke look set to deter the bears from pushing the USD further. On the Japanese front, while Japan’s trade and current account surpluses are likely to narrow temporarily in the near term, the risk appetite environment has not deteriorated. Thus, the recycling of the external surplus with capital outflows at prevailing JPY exchange rates should be relatively easy. Also, Japanese retail investors’ capital outflows have recovered. With USDJPY spot holding well after the broad USD recovery and the Fed looking [...]

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Economic uncertainty in the Euro bloc has led to a weaker perception of the EUR in the current market. At the same time, the stable equity markets have led to a positive environment for carry currencies, with the AUD dollar leading the views. The fundamental view has projected lower EURAUD rates going forward.
EURAUD forecast for 2008:
Spot 1.6900
Q2 1.6300
Q3 1.5500
Q4 1.5400
Risk /Reward trades
Options enable the end user to take on attractive risk reward trades while limiting their downside in the event the forecasted rates do not prove correct. Further, option spreads utilize a sold option combination
to reduce the premium outlay, while [...]

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Compound options is an efficient way for risk managers to take advantage of current USD weakness and hedge possible exposures for 2009 and beyond in advance of the normal planning/budgeting/hedging cycles for those periods.
A compound is an option to buy an option at a date in the future for an agreed strike and option premium today. Put differently, hedger enters into an option and receives the right to use the option hedge (with the strike rate set at today’s levels) at a later time.
A compound option is flexible in the sense that hedger can choose the amount of premium to [...]

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