Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Market Specialist
The Japanese yen has been rallying due to the unwinding carry trades on the yen after the Bank of Japan (BoJ) raised the benchmark interest rate to tackle yen weakness and rising inflation. At the same time, the U.S dollar has weakened following disappointing economic data and recession fears. The dollar has extended its decline, with the dollar index hitting year-to-date lows as markets anticipate Fed Chair Powell to address the rate cut in September at the Jackson Hole symposium this week. BOJ Governor Ueda is also expected to discuss BOJ’s rate hike decisions on 23rd August. The BoJ’s timely rate hikes strategically position the yen to potentially benefit from the Fed’s dovish approach, as the dynamic shift in monetary policies will narrow the interest differentials between the two currencies. The USDJPY pair has declined sharply and is currently trading below 146.
The Japanese yen remains more a function of what happens with the US data, although BOJ's stance can create some near-term volatility. The unwinding of carry trades seen in early August has already turned speculator positioning in the yen to a net long, and a fresh trigger - potentially from escalating US recession concerns - may be needed for USDJPY to break below 140.
Buy Put/Sell Put/Sell Call for 1 month
Scenario Analysis comparing pay-offs (in JPY) of Sell Spot vs Sell Call vs Seagull for 1 month for a notional value of USD 100k
Buy Put/Sell Put/Sell Call for 3 months
Scenario Analysis comparing pay-offs (in JPY) of Sell Spot vs Sell Call vs Seagull for 3 months for a notional value of USD 100k
Buy Call/Sell Put for 1 month
Buy Call/Sell Call/Sell Put for 1 month
Scenario Analysis comparing pay-offs (in JPY) of Buy Spot vs Sell Put vs Collar vs Seagull for 1 month for a notional value of USD 100k
Buy Call/Sell Put for 3 months
Buy Call/Sell Call/Sell Put for 3 months
Scenario Analysis comparing pay-offs (in JPY) of Buy Spot vs Sell Put vs Collar vs Seagull for 3 months for a notional value of USD 100K
Important disclaimer: The impact of swaps is not taken into consideration in the scenario above. The strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and consider their unique financial situation, risk tolerance, and investment objectives before making any decisions.
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