BUZZ-COMMENT-EUR/USD usually drops in January, insurance needed

Dec 30 (Reuters) - FX traders can use a simple option to insure against EUR/USD dropping further as we head into January, a month that is usually negative for that major currency pair.

EUR/USD seasonal performance since 2000 shows it has fallen in January for 16 of the past 25 years, or 64% of the time. However, seasonality patterns should not be considered in isolation, they need to be corroborated with other factors.

EUR/USD's fourteen-day momentum remains negative, highlighting the overall bearish outlook. Also the negative alignment of the tenkan and kijun lines is bearish, increasing the scope for an eventual break under the 2024 1.0332 (EBS) low posted back in November.

There is a combination of seasonal, fundamental and technical factors that could lead to bigger gains in the dollar which should put further downward pressure on EUR/USD.

Those who want to protect against a short-term EUR/USD slump could buy a two-week 1.0430 EUR put option at a cost of 52 pips, priced with spot at 1.0443. Profit potential is unlimited if spot is below the 1.0378 breakeven point at the Jan. 13 expiry. Losses are limited to the 52 pips premium paid.

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(Martin Miller is a Reuters market analyst. The views expressed are his own)

((martin.miller@thomsonreuters.com))