FX traders should be mindful that USD/JPY's upside risk is growing and could use a simple option strategy to cover a bigger USD/JPY gain.
While USD/JPY upside has been limited recently, a bigger recovery cannot be ruled out.
That is because the tenkan and kijun lines have recently seen a positive crossover.
USD/JPY has not traded above the daily cloud, currently 105.85-106.18, since June 24.
An eventual break above the cloud would be warning that the overall bias has shifted up to the upside.
Japan's ministries have asked for a record $997 billion in initial budget for the next fiscal year nL4N2GY0CK, a revelation that could put further pressure on the yen.
FX traders wanting to insure against a USD/JPY rise could buy a two-week 106.25 USD call option at a cost of 38 pips, priced with spot at 106.08.
Profit potential is unlimited if spot is above the 106.63 break-even point at the Oct.
Losses are limited to the 38 pips premium paid.
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