The EURUSD closed above the 1.25 mark yesterday and has been trading around 1.24-1.245 during the day after as expected Euro CPI and slightly lower US CPI data releases. USDJPY has traded in a small range and we expect low volatility to remain mild while awaiting the FOMC rate decision and statement to follow, taking place at 19GMT.
A short duration position towards today’s meeting can be an interesting combo of options on EURUSD and USDJPY. The graph below shows that USDJPY is much lower since its highs this month whereas the EURUSD has had a very small range in comparison so for the near term, it seems like the USDJPY has more to go up than the EURUSD has to go down.
In general and for longer term, I wouldn’t go as far as stating that you can trade correlation with these two pairs but towards tonight’s meeting and after we get the Euro data out of the way, we can put on an interesting position that can be considered relatively hedged until the renewed Asia session.
In the combo below, I have bought a Call on the USDJPY ATM (strike = 117.383) with 1 day duration and on the EURUSD ATM (strike = 1.24157) also with a 1 day duration. Premium at open is $651 and $528 respectively. Depending on the statement, if the words “considerable time” will be dropped as anticipated in regards of keeping rates low, we expect the Dollar to strengthen and see the USDJPY rise while EURUSD trades lower. If the words remain in statement, we expect the opposite to occur and depending on the magnitude of the moves in each pair, you may see the profit of one position out way the loss of the other.
A short duration position towards today’s meeting can be an interesting combo of options on EURUSD and USDJPY. The graph below shows that USDJPY is much lower since its highs this month whereas the EURUSD has had a very small range in comparison so for the near term, it seems like the USDJPY has more to go up than the EURUSD has to go down.
In general and for longer term, I wouldn’t go as far as stating that you can trade correlation with these two pairs but towards tonight’s meeting and after we get the Euro data out of the way, we can put on an interesting position that can be considered relatively hedged until the renewed Asia session.
In the combo below, I have bought a Call on the USDJPY ATM (strike = 117.383) with 1 day duration and on the EURUSD ATM (strike = 1.24157) also with a 1 day duration. Premium at open is $651 and $528 respectively. Depending on the statement, if the words “considerable time” will be dropped as anticipated in regards of keeping rates low, we expect the Dollar to strengthen and see the USDJPY rise while EURUSD trades lower. If the words remain in statement, we expect the opposite to occur and depending on the magnitude of the moves in each pair, you may see the profit of one position out way the loss of the other.
Recommended Content
Editors’ Picks
EUR/USD retreats below 1.0700 as USD rebounds
EUR/USD lost its traction and retreated slightly below 1.0700 in the American session, erasing its daily gains in the process. Following a bearish opening, the US Dollar holds its ground and limits the pair's upside ahead of the Fed policy meeting later this week.
USD/JPY recovers toward 157.00 following suspected intervention
USD/JPY recovers ground and trades above 156.50 after sliding to 154.50 on what seemed like a Japanese FX intervention. Later this week, the Federal Reserve's policy decisions and US employment data could trigger the next big action.
Gold holds steady above $2,330 to start the week
Gold fluctuates in a relatively tight channel above $2,330 on Monday. The benchmark 10-year US Treasury bond yield corrects lower and helps XAU/USD limit its losses ahead of this week's key Fed policy meeting.
Week Ahead: Bitcoin could surprise investors this week Premium
Two main macroeconomic events this week could attempt to sway the crypto markets. Bitcoin (BTC), which showed strength last week, has slipped into a short-term consolidation.
Five Fundamentals for the week: Fed fears, Nonfarm Payrolls, Middle East promise an explosive week Premium
Higher inflation is set to push Fed Chair Powell and his colleagues to a hawkish decision. Nonfarm Payrolls are set to rock markets, but the ISM Services PMI released immediately afterward could steal the show.