After their bullish yen trades were put to the test last week, hedge funds are again betting that the yen will outperform other major currencies in the coming months.
Traders said that so-called macro hedge funds, which try to profit from market volatility triggered by political or economic events, continued to buy call options on the Japanese yen against the US dollar, the euro and the Swiss franc this week.
As of 10:47 a.m. Hong Kong time, the call options on the yen against the US dollar on the CME Group’s Options Central Limit Order Book were seven times as many as the put options.
On February 20th, all the nominal transactions of at least 200 million US dollars of the US dollar against the Japanese yen in the Depository Trust & Clearing Corporation had strike prices at or below 150. Despite the fact that the Japanese yen fell to around 150.40 against the US dollar on Friday morning after the Bank of Japan issued a warning on bond yields, the Japanese yen still rose by more than 1% this week.
Graham Smallshaw, a senior spot foreign exchange trader at Nomura Singapore, said: “The macroeconomic community has indeed tried to short the USD/JPY again, especially after it broke through the 200-day moving average of 152.75 on February 14, but the scale is much smaller.” He also observed that funds are seeking to buy the JPY against other currencies.
Ivan Stamenovic, head of G-10 foreign exchange trading for Bank of America in the Asia-Pacific region, said that yesterday’s Asian market “saw a sharp shift towards bullish yen positions, both in the USD/JPY and yen crosses.” “At present, most of the interest in yen call options remains tactical and short-term.”
Japan’s inflation rate rose to its highest level in two years in January, providing grounds for the Bank of Japan to raise interest rates further this year. Swap markets expect a 25 basis point increase in the benchmark interest rate by the end of July with a probability of around 84%, and this will be fully reflected by September.
However, renowned investment bank Goldman Sachs is not worried about the overall future trend of the US dollar.
Goldman Sachs strategists said that currency traders have underestimated the risk of the Trump administration imposing new tariffs, which has enhanced the appeal of the US dollar and the prospects for further appreciation.
In a report on Thursday, Karen Reichgott Fishman and Lexi Kanter of Goldman Sachs wrote: “Ultimately, not all tariffs are created equal when it comes to foreign exchange. But given the recent pullback in major cross-currency premiums, we again believe that tariff risks are underestimated, making dollar long exposure look more attractive now.”
Technical analysis:
Gold: Yesterday, we alerted two price levels for potential buying in the plugin. The upper blue area did not materialize as expected, but the lower green demand zone buy point was triggered immediately, achieving a profit-to-loss ratio of more than 2:1. Today, the price has dropped back to the 2920/30 area. We suggest that you should observe carefully today, and be cautious of a potential decline due to the Friday effect after the North American trading session. For detailed positions, please consult the plugin.
(15-minute Gold Chart)
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Nasdaq: Yesterday, we clearly reminded in the article and the plugin to pay attention to the low buy after the liquidity cleaning. As expected, the price began to stabilize and rebound only after breaking through the bottom of the yellow zone at 22,082. We suggested to wait and see on Friday. If you want to operate, you should wait for the recovery above 22,200 before considering short-term buying. For detailed positions, please consult the plugin.
(15-minute Nasdaq Index chart)
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Crude oil: Yesterday, we clearly reminded you of the buy stop operation after the price broke through the blue momentum zone, which could bring a profit-loss ratio of 6 to 7 times. The price has pulled back and consolidated intraday. We suggest you continue to take the momentum break as the buying opportunity today. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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Today’s key financial data and events to focus on:
17:00 Eurozone February Markit Manufacturing Purchasing Managers’ Index (PMI) Flash Estimate
17:30 UK Markit/CIPS Manufacturing Purchasing Managers’ Index for February
21:30 Canadian retail sales for December
23:00 US January NAR seasonally adjusted existing home sales (annualized monthly rate)
