The yen and Swiss franc remain under pressure as equity markets stay bid and rate-setters signal a slow path to tightening, even with energy prices lifting global yields. In thin summer trading, higher-yielding currencies with energy hedging appeal have been favoured, supporting the dollar and the Norwegian krone. USD/JPY has been pushed higher after the Bank of Japan did not intervene over a recent public holiday, with the pair seen grinding towards 164/165 ahead of the BoJ meeting on 31 July. USD/CHF is also in focus as the Swiss National Bank is viewed as unlikely to repeat the $70bn FX intervention executed by the BoJ in April/May; a break above 0.8150/70 is watched, while DXY has held within 100.35 to 101.80.
EUR/USD has held up even as natural gas retests the March high of EUR60/MWh, with rate differentials reflecting firmer ECB tightening expectations than for the Federal Reserve, although upside in market pricing is seen as limited ahead of tomorrow’s ECB meeting; EUR/USD is tracked towards 1.1380. In the UK, services inflation on the BoE’s core services metric eased from 3.8% to 3.6% and EUR/GBP has traded around last week’s 0.8455 low. Hungary’s NBH cut by 25bp to 5.75%, signalled another move in August and a review in September; markets had priced out around 40bp of easing, the implied terminal rate is near 4.75–5.00% versus a 4.00% medium-term view, and EUR/HUF is flagged below 360 if the backdrop steadies.
Derivative Strategies for USD/JPY and USD/CHF
We advise derivative traders to position for continued upward momentum in USD/JPY and USD/CHF over the coming weeks as high energy prices persist. Global energy benchmarks remain elevated, with Brent crude hovering near $85 a barrel and European natural gas testing €60/MWh. With the Bank of Japan showing reluctance to intervene, we expect USD/JPY to grind toward the 164/165 range ahead of the July 31 policy meeting, making near-term call options highly attractive.
For USD/CHF, we recommend looking at breakout strategies above the 0.8150/70 resistance level. The Swiss National Bank’s decision to maintain a dovish stance, keeping its policy rate lower than its global peers, is widening interest rate differentials. Buying USD/CHF call options or setting up bullish risk reversals could yield strong returns as the Swiss franc remains structurally weak.
Options Market Outlook for EUR/USD
In the options market for EUR/USD, we suggest hedging for a downward drift toward 1.1380. Even though European natural gas prices have surged, the market has likely priced in the peak of the European Central Bank’s hawkishness. Given the light summer liquidity and the Federal Reserve’s relatively stronger yield advantage, downside put options on the euro offer a favorable risk-reward ratio.
