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Apr 20 - 06:55 AM

USD/JPY - COMMENT-FX Options Right On USD/JPY So Far, Where Next?

By Richard Pace  —  Apr 20 - 05:01 AM

By their forward-looking nature, FX options can provide clues on the outlook for a particular currency pair, and USD/JPY has been playing out as traders had anticipated, but where next?

Last week saw dealers covering exposure down at 108.00, but not much below this level, suggesting it may prove to be the lower bound nL1N2M81BM.
USD/JPY has since bounced from a 107.98 low.

This week saw renewed demand for higher strikes up to 110.00 and expiring after the next month, with traded volumes exceeding those to the downside, which remain light.

That suggests, that for now at least, option traders don't see an immediate threat of USD/JPY extending losses, but potential for it to return toward 110.00 over coming weeks.

Implied volatility gained as USD/JPY fell toward 108.00, but after one-month expiry peaked 5.8 from 5.35, it's traded 5.7.
One-month-expiry risk reversals increased from 0.1 to 0.5 JPY calls since late March, but that downside premium has also peaked, reinforcing the view that USD/JPY has based for now.

Related comment nL1N2MC0K5


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USD/JPY 1-month implied volatility Click here

USD/JPY 1-month 25D risk reversals Click here

Source:
Refinitiv IFR Research/Market Commentary

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