Hedge funds are betting that the yen will fall to a low of 160 yen to the dollar by the end of the year against the US dollar, as the Federal Reserve and the Bank of Japan have changed their interest rate policies.
On Thursday, the volume of call options that would profit from a stronger dollar against the yen soared. Data from the Depository Trust & Clearing Corporation (DTCC) showed that the volume of call options with a notional value of $150 million or more was six times that of put options that would profit from a weaker dollar.
On Thursday, the dollar rose to its highest level against the yen since February. The Bank of Japan kept its benchmark interest rate unchanged and gave no indication of when it might raise rates again. Traders now see a 48% chance of a 25 basis point rate hike in December, but expect any increase to be at least until March or April next year. In contrast, despite the Federal Reserve’s rate cut on Wednesday, Chair Jerome Powell warned that another cut in December was not a certainty.
Different positions have led macro hedge funds, which aim to profit from broad market fluctuations caused by political or economic events, to seek a target of the USD/JPY reaching 157 within a month and 158-160 by the end of the year, said Sagar Sambrani, a senior foreign exchange options trader at Nomura International Plc in London.
He said: “Given the good performance of the actual volatility, our macro business department mainly participated in this transaction through digital channels. We also noticed that the RKO structure was introduced to reduce the premium, with the expectation that the central bank might intervene when approaching the key level of 160.”
Reverse knockout options (RKO) are more cost-effective than standard call options because if the price breaks through a specific barrier, the RKO will become invalid and worthless. Digital options refer to a strategy that offers a fixed return if the currency pair exceeds a predetermined level at expiration.
Options traders are not the only ones who think the dollar could reach 160 against the yen. Amundi said that if the dollar breaks through 155 against the yen, the exchange rate could fluctuate around that level.
Technical analysis:
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Gold: The buying effect after the breakout and pullback in the blue area yesterday was very impressive. For today, we’ll be watching the defense and attack performance around 3960. As long as 3960 doesn’t fall, we remain optimistic about the correction and rebound trend next week. For detailed positions, please consult the plugin.
(Gold 15-minute chart)
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The Nasdaq continued to hit new highs as tensions eased around TACO trading and potential progress in Sino-US trade negotiations. The buy limit operation in the green zone suggested by the plugin yesterday offered 2-3 opportunities, but the strength was average. Today, we will focus on the pullback opportunities after the price swings up and down with high liquidity. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: After a week or so of continuous recovery and rebound, the oil price trend has begun to enter a sideways consolidation pattern. Due to the weekend and month-end factors, we suggest observing for one day for the time being. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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