Event Risk Versus Technical Uptrend
We are watching a tense situation in EUR/JPY around the 185.90 level. The underlying trend remains bullish, supported by technical indicators like the Relative Strength Index sitting at a healthy 58.43. However, the persistent warnings from Japanese officials create a significant risk of a sudden, sharp drop in the pair. We must remember the interventions of late 2024, when authorities spent over ¥9 trillion to strengthen their currency. A similar move now could easily push EUR/JPY down several hundred pips in a matter of hours. This historical precedent makes the current verbal warnings highly credible and not something to ignore.Volatility Strategies In Focus
Given this conflict between the trend and the event risk, we believe derivative strategies that profit from volatility are the most sensible approach. The market is pricing in this tension, with one-month implied volatility for JPY pairs having risen over 11% in the last quarter. Buying options allows us to position for a large move while strictly defining our maximum risk to the premium paid. For traders who trust the uptrend, we suggest buying call options targeting the April high of 187.42. This strategy lets us participate in further gains if intervention fears subside and the strong fundamental divergence between the ECB and BoJ policy reasserts itself. If officials do step in and the price falls, our loss is simply limited to the option’s premium. Conversely, we see value in buying put options as a direct hedge or speculative bet on intervention occurring in the coming weeks. A break below the 185.08 support level could quickly lead to a test of the 100-day moving average near 184.47. This strategy offers a straightforward way to profit from the primary risk that the market is currently watching.Start trading now — click here to create your real VT Markets account.
