Market Overview

USD/JPY Forecast: Options Market Readies For correction?

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The struggle for a convincing break above 113.00 handle continues... The Dollar-Yen pair clocked a high of 113.06 earlier today and now trades around 112.80 levels. The steeper yield curve, tax reform talks are Dollar supportive. Also supporting the US Dollar is the news that President Trump and Steven Mnuchin met with former Fed governor Kevin Warsh last week has also helped to drive yields higher. Warsh could be a potential replacement for Fed chair Yellen and is a hawk on monetary policy.

Open positions in 'JPY/USD' Calls rise

  • The open interest/open positions in the Calls increased by 576 contracts on Friday. In the money calls added 267 contracts and out of the money calls added 205 contracts.
  • Open positions in Put options increased by 205 contracts. In the money Puts added only 15 contracts while out of the money puts added 190 contracts.

Clearly, the bias is bullish on the Japanese Yen. This adds credence to the one-month 25-delta risk reversals gauge, which fell to -1.90; the lowest level since May 29. It indicates increased demand for Put options. It seems investors are worried about the near 90-degree rally in the USD/JPY, hence are hedging against a potential correction/pullback in the spot.

Technicals - Correction to gather pace below

4-hour chart

  • Repeated exhaustion near the 113.00 handle if results in a break below 112.57 [confluence of the 1-hour 100-MA, the 1-hour 50-MA and rising trend line support] would open doors for a sell-off to 112.00 [200-DMA].
  • Only an end of the day close below 111.47 [Sep 25 low] would signal the rally from 107.32 has topped out near 113.00.
  • On the higher side, an end of the day close above 113.00 followed by a couple of days of sideways action would open doors for a sustainable rally towards 115.00 levels.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Forex FXStreet FXstreet.comForex Markets

 

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