Dollar Strength and Technical Momentum
We see the upward momentum in USD/JPY is strong, having broken out after holding the multi-month trendline now near 157.40. The dollar’s strength is backed by recent data, such as last week’s May US CPI report which came in at a persistent 3.5%. This reinforces the idea that the Federal Reserve will not be cutting rates anytime soon. Given this trend, we believe traders should consider long positions, possibly through call options targeting the initial resistance around the 162 peak. A break above this level would open the path towards our next objectives at 163.70 and 164.20. Using call spreads, such as buying a 162 call and selling a 164 call, can help define risk and lower the entry cost.Intervention Risks and Trading Strategies
We must remain cautious due to the constant warnings of “decisive action” from Japanese officials. Looking back at the massive ¥9.8 trillion intervention in the spring of 2024, we know such moves cause sharp, immediate drops but often fail to reverse the underlying trend. This threat is keeping short-term option volatility elevated, making outright long calls expensive. The Bank of Japan’s signals for future tightening are being taken with a grain of salt by the market. Despite hawkish minutes, recent domestic data like the Tokyo CPI for May coming in below target at 1.9% suggests there is no urgency to act. This policy divergence with the Fed is the fundamental driver pressuring the yen. Therefore, we think a good strategy is to position for the uptrend while respecting the risk of a sudden drop. One approach could be buying longer-dated call options, looking past the immediate intervention noise, while potentially selling shorter-dated, out-of-the-money puts to collect premium. The key support levels to watch for any strategy are 159.65 and 159.10.Start trading now — click here to create your real VT Markets account.
