USD/JPY near-term recovery moves are likely to be short-lived as the daily technical chart highlights quite a fragile currency pair and worries about the U.S. dollar persist.
A simple option strategy can be used to cover a short-term relapse.
While the dollar steadies against major currencies on Wednesday as FX traders await U.S. Federal Reserve minutes nL3N2N615H, increased market expectations that U.S. interest rates will stay low will likely hurt the greenback across the board.
USD/JPY twice failed to sustain breaks above 109.64 Fibonacci level, a 61.8% retrace of the 110.97 to 107.48 (March to April) EBS drop.
It also failed to remain above the daily Ichimoku cloud that currently spans the 107.69-109.70.
These failures are keeping the overall bias on the downside.
To insure against a USD/JPY setback, for example, traders could buy a one-week 109.10 USD put option at a cost of 30 pips, priced with spot at 109.13.
Profit potential is unlimited if spot is below the 108.80 break-even point at the May 26 expiry.
Losses are limited to the 30 pips premium paid.
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