Talk of renewed Bank of Japan action pushed USDJPY sharply lower, dragging the Dollar Index down ahead of today’s US non-farm payrolls release. The euro was described as heading towards 1.17, while EURINR was seen around 110-110.50; EURJPY fell below 182 with scope to test 180. The Australian dollar was projected to rise towards 0.73 and sterling to test 1.3450 before rebounding, while USDCNY was pointed towards 6.71/70; the Indian rupee was flagged as having room to strengthen to 94 before reversing.
US Treasury yields were characterised as higher and steady with further upside, while German yields were said to be stalling around key resistance without follow-through. India’s 10-year GoI yield was noted as lower but holding above support, with a positive near-term bias despite risk of an intermediate dip. In equities, the Dow was described as firmer above 53,000, with 54,500-55,000 in view if 54,000 gives way; DAX was seen rising towards 26,500, while Nifty risked 23,600 if 23,800 fails and Nikkei was seen sliding towards 62,000. Shanghai was pegged in a 3,850-4,000 range. Brent and WTI were mapped to $100 and $95, gold to $4,700-$4,800 if above $4,600, silver to $75-$80 if above $70, copper to $6.50-$6.80, and natural gas to $3.25-$3.50 if above $3.00.
Derivative Trading Strategies for Currencies
We advise derivative traders to prepare for high volatility in yen-crosses following another suspected intervention by the Bank of Japan. To capture this downward momentum ahead of today’s crucial U.S. jobs report, we suggest buying short-dated put options on USDJPY. Historically, major currency interventions—similar to Japan’s massive 9.8 trillion yen defense of the currency in the past—lead to rapid carry-trade unwinding that could easily drag EURJPY below 180 in the coming weeks.
In the currency options market, we see a clear path to position for a softer U.S. dollar. We recommend buying call options on the Euro targeting 1.17 and the Aussie targeting 0.73, while waiting for the Pound to dip toward 1.3450 before buying the rebound. Additionally, we suggest derivative traders position for near-term strength in the Indian Rupee toward 94 before looking for a structural reversal.
Derivative Strategies for Rates, Equities, and Commodities
For interest rate derivatives, we remain structurally bullish on US Treasury yields and recommend selling bond futures on any minor price rallies. Any dips in US yields are likely to be shallow and short-lived, as the broader macroeconomic backdrop continues to support higher rates. However, we suggest holding off on shorting European debt until German Bund yields successfully break past their current key resistance level.
In equity derivatives, we recommend buying call options on the Dow now that it has cleared 53,000, targeting a further run to 55,000. Meanwhile, we advise a cautious or outright bearish approach on the Nikkei and the Nifty, using put options to hedge against drops to 62,000 and 23,600 respectively. Traders can also look at long DAX futures as the index tries to bounce back toward the 26,500 level.
For commodity derivatives, we recommend going long on oil futures as Brent and WTI head toward $100 and $95 respectively, supported by tight global energy supplies. In precious metals, we suggest waiting for Gold to stabilize firmly above $4,600 and Silver to clear $70 before entering aggressive new long positions. Finally, we advise staying on the sidelines for Natural Gas until a confirmed breakout above $3.00 opens the door for a rise to $3.50.
