FxWirePro: square off ratio spreads and uphold optionality for sluggish BRL despite GDP data announcement
Source: FxWire Pro - Economic Indicators / 01 Sep 2017 07:34:30 Eastern Standard Time
Brazilian GDP publication for Q2 today is likely to confirm that the recovery following the two-year recession is rather sluggish. Even though growth in Q1 was very robust at 1% qoq (seasonally adjusted) this was mainly due to a strong agricultural sector. Growth in Q2 is likely to have been much weaker at 0.1%.
However, today’s publication is unlikely to affect the BRL. The currency benefits from the notable improvement on the political front (the corruption scandal surrounding President Michel Temer) and the continued positive environment for EM currencies.
On the other hand we see little upside potential for the BRL. The Brazilian central bank remains in easing mode, it is still possible that Temer will have to stand down and the fiscal policy risks remain quite high.
In our previous write ups we had advocated below option strategies, all of them in line with the our expectations as the underlying spot rates remain in the range.
USDBRL ratio call spreads as Brazilian lira reflects broader appetite amid major trend, we close this trade as short legs seem to have been fetched handsome yields.
We continue to maintain the below option portfolio:
Sell 1M vs. buy 3M USDBRL ATM in vega neutral notionals.
Buy USDBRL 1Y ATM vs sell 18M 25D strangle, 1:2 vega.
Buy 2M USDBRL vs. sell 2M USDCLP in 100:120 vega ratios.© FxWire Pro 2018. All rights reserved. The FxWire Pro content received through this service is the intellectual property of FxWire Pro or its third party suppliers. Republication or redistribution of content provided by FxWire Pro is expressly prohibited without the prior written consent of FxWire Pro, except for personal and non-commercial use. Neither FxWire Pro nor its third party suppliers shall be liable for any errors, omissions or delays in content, or for any actions taken in reliance thereon.