After a terrible US jobs report, the market has set about celebrating the implications of weak data on Fed policy, which is seen as more cautious than previously, when the Fed was talking up the potential to hike rates two to three times this year.
Risky assets globally have surged higher since Friday’s bad news. That strong risk appetite should weigh on the Japanese yen, where the focus previously had been on the futility of the Bank of Japan’s policy as Japan faces economic headwinds.
But in the context of a continued global, risk-on market mood, the negative-yielding yen should be one of the weaker currencies, assuming that the move extends.
This trade view also incorporate the next round of key US data in early July, in the event we see a bounce/mean reversion in the jobs and other numbers.
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Source: Saxo Bank
Management and risk description
Risks to this trade include a shift to weaker risk appetite on concerns about the trajectory of US growth – this is the chief risk to this trade from a US perspective.
Elsewhere, a vote in favour of the UK leaving the EU at the June 23 referendum could also spell trouble for all JPY crosses as investors ponder the macro implications and sell risky assets again versus JPY.
Long strike: 109.50.
Short strike: 111.50.
Expiry: July 14.
Cost: 52 pips.
Minimum target: 100 pips above cost.
Spot reference (June 7): 107.50.
— Edited by Michael McKenna
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Non-independent investment research disclaimer applies. Read more