USD/JPY Moving Averages
USD/JPY remains within its 100 and 200-day moving averages, from 146.03 to 148.67. This provides substantial range flexibility until another major market event occurs.
With the market already pricing in three Fed rate cuts by year-end, we see limited room for further dollar weakness in the immediate term. The August CPI report we saw last week came in softer than expected at 2.9%, reinforcing this disinflationary trend. The large EUR/USD option expiries at 1.1700 and 1.1725 are likely to act as a magnet for price action today.
Given this pinning action, we see this as a chance to look at options strategies for the coming weeks that anticipate a move higher. Implied volatility for EUR/USD has been trending near its lowest levels since the spring of 2024, making it relatively inexpensive to position for a significant move. This suggests buying volatility could be a favorable strategy.
Call Option Strategies
We believe that buying out-of-the-money call options, or setting up call spreads targeting a move towards the 1.1950 area, could offer a good risk-reward profile. This would take advantage of the market’s bigger-picture ambition to push higher once these short-term expiries are cleared. The ECB’s cautious hold on rates yesterday provides a supportive backdrop for euro strength against a softening dollar.
For USD/JPY, the situation remains a tug-of-war, keeping us locked in the range between roughly 146.00 and 148.70. The drop in the US 10-year Treasury yield to around 3.8% is capping the upside, but the Bank of Japan’s slow approach to policy normalization is preventing a sharp drop. This stalemate suggests the pair will continue to drift sideways.
The expiries around 147.40 today are minor, so we should focus on the broader range-bound behavior that has been in place since July 2025. This environment is ideal for strategies that involve selling volatility, so long as a major new catalyst doesn’t appear. Looking back at similar periods in 2023, these quiet ranges often preceded sharp breakouts, but for now, we play the range.
We see an opportunity in selling strangles with strikes placed outside the key moving averages, perhaps below 146.00 and above 148.70, to collect premium. As long as the pair continues to roam between these levels without a major policy shock from the Fed or BoJ, this strategy should perform well. This allows us to profit from the lack of direction over the next few weeks.
