USDJPY Turns Bullish Again After Yellen’s Comments & Strong Consumer Confidence

The US dollar gained upward momentum again last Friday after Federal Reserve Chair Yellen made comments perceived by many analysts as indicating an interest rate hike may be very close. Price went from an open of 100.50 to close at 101.788, after a pause on Monday, momentum picked up again yesterday with an open at 101.904 and a close above 103.00.

Yesterday’s rally was also helped by better than expected Consumer Confidence data which was released at 3pm at 101.1 when the general consensus was for a number closer to 97, after last month’s 96.7. More data is due on Friday at 1:30pm for Non-Farm Payrolls, employment data is considered as extremely important to determine possible monetary policy timing, as the Federal Reserve has repeatedly made it clear that employment is one of the main factors in deciding future interest rate hikes. The market has a consensus forecast of 180k new jobs, with last month’s number coming in at a surprise 255k.

Before that, we will also see data released overnight tomorrow from Japan at 2am for the Purchasing Managers Index, which is an indicator of economic activity. The forecast is for a small decrease to 49.3 compared to last month’s 49.6. 

If you feel that volatility for this pair will increase over the next week then all you need to do is Buy a Straddle strategy, which consists of simultaneously buying a Call and a Put option with the same strike, expiry and amount.

The screenshot below shows a USD/JPY Buy Straddle with a 103.126 strike, 7 day expiry and for $10,000 would cost $141.73, which would also be the maximum risk.

This screenshot shows the profit and loss profile of the above USDJPY Buy Straddle, just click the Scenarios button.

If on the other hand, you feel that volatility will stay flat or decrease over the next week then all you need to do is Sell a Straddle strategy, which consists of simultaneously selling a Call and a Put option with the same strike, expiry and amount.

The screenshot below shows a USDJPY Sell Straddle strategy with a 103.099 strike, 7 day expiry and for $10,000 would generate a revenue of $124.03, with a maximum risk of $324.03.

This screenshot shows the profit and loss profile of the above USDJPY Sell Straddle.