FX Options Insight 28/10/24
As attention turns to other event risks, such as a Bank of Japan policy decision and U.S. payroll data next Friday, it is interesting to note that the options market also predicts that the spot rate will mean-revert from its initial increase. But in both the overnight and one-week tenors, the premiums for options that gauge the risk of outlier swings stay low.
The USD/JPY market will become more anxious as the week goes on. With the BOJ meeting and U.S. jobs data included, one-week volatility has increased to 14.7%, the highest level since September. When the yen carry trade collapsed in early August, two-week options that take into account the outcome of the U.S. election were at 15.2%.
JPY trims session loss as lower oil and equity gains weigh on greenback. USD/JPY eyes nearby supports at Friday's high of 152.38 ahead of the 152 pivot level and 151.81. Pair reached a three-month high of 153.885 earlier after the LDP-Komeito coalition lost its Lower House majority during weekend elections. JPY should remain choppy due to month-end flows, uncertainty about Japan's new governing coalition and US jobs data later this week. The Japanese currency could slip further if the new Japanese government formed in next 30 days threatens the pace of BOJ tightening.
Speculators who bet against the U.S. dollar have given up. There is a good chance the dollar will continue to strengthen in the coming days and weeks as the technical outlook remains positive. The speculative position - based on net contracts of International Monetary Market speculators in the euro, yen, pound, Swiss franc, Canadian and Australian dollars - has switched. For the week ending Oct. 25, the value of net positions held by speculators flipped to a $9.78 billion long from near $820 million short a week earlier.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!