Reuters takes regular soundings from strategists and analysts, where the press agency asks the experts for their assessment of various assets. The “FX Poll” offers a snapshot of opinion on the current markets. Another one came at the start of August, when 56 strategists expressed their views on the US dollar, among others. It is well known that the greenback has surfed a veritable wave of appreciation over recent months. For the EUR/USD currency pair this has been expressed in a striking downward movement: the single European currency has shed around a tenth of its value against the US dollar since the turn of the year. Of those who took part in the survey, 28% believe that the dollar’s strength has now gone as high as it will go. While another quarter of those asked reckon it will reach a peak within three months, 34% expect the top in six months at the latest.
Chart technology continues to come out against the euro. Since spring 2021, the single currency has trended consistently down against the US dollar. Last February a further straight line leading even more steeply downwards emerged from this constellation. In mid-July, it took the EUR/USD rate to below parity for the first time in almost two decades. Even so, the euro traded at below USD 1 for a short time only, and in the last few weeks the exchange rate has stabilised at above USD 1.01 (see chart). A recent new issue by Leonteq fits in with the possible bottoming out. The Zurich fintech company has launched a Double No Touch Note on EUR/USD. This product marries the safety features of a capital protection certification with the high-potential payout modalities of the inline warrant.
At the end of the one-year term the capital is 90% protected. That means investors can limit their loss risk from this exposure to one tenth. At the same time, they are bringing the opportunity of a profit of 25% into their portfolio. The key to this is two barriers: Leonteq fixes the higher barrier level at USD 1.10, while the lower barrier level stands at USD 0.90. The Double No Touch Note is structured with an American option, which means the barriers are active across the entire term. As long as the EUR/USD rate does not touch either of the barriers, 125% of the product will be paid back, delivering the maximum return. Should a barrier be touched, on the other hand, the capital protection kicks in. The payout is then 90%, regardless of how the underlying goes on to perform.
The euro can thus move within a range of just under USc 20 over the next twelve months without endangering the opportunity of a return as outlined above. The FX duo last traded below the lower barrier more than 20 years ago, in May 2002. On the other hand, the 1.10 threshold was last touched just a few months back. The exchange rate fell through this level at the start of April 2022, continuing the downward trend mentioned above. Our conclusion is that this new issue allows safety-conscious investors to bet that the single currency will stabilise as far as possible over a one-year horizon. If this calculation pays off, they can pull in a high return. Please note that the capital protection does not kick in until the maturity date, whereas the product is exposed to various market influences over its term and could even fall below the 90% level.
We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: 058 800 11 11, email info@leonteq.com or contact us here.
