Forex Investment and Currency Trading

Although G8 might have disappointed USD bulls with the lack of commentary on currencies, recent USD-bullish rhetoric from Paulson and Bernanke look set to deter the bears from pushing the USD further. On the Japanese front, while Japan’s trade and current account surpluses are likely to narrow temporarily in the near term, the risk appetite environment has not deteriorated. Thus, the recycling of the external surplus with capital outflows at prevailing JPY exchange rates should be relatively easy. Also, Japanese retail investors’ capital outflows have recovered. With USDJPY spot holding well after the broad USD recovery and the Fed looking done with the rate cuts, market thinks it is likely that spot stays rangebound in the midterm with a slight upside bias.

All strategies with spot 108.00

Long 3mth 109/112 USD call spread financed with the sale of 3mth 102.50 USD put
15pips. The strategy starts generating intrinsic value within a big figure in spot and yields maximum return on a grind higher in spot up to 112.00 where the gain is maximized at 300 JPY pips. On the downside, although the loss is unlimited at 102.50, spot has a substantial 5.5 big figure move lower before the strike gets into the picture.

3mth 103.00 / 113.00 DNT
30% offer. With a 30,000 investment, the strategy returns 100,000 if spot holds within this range for a 3-month period. Spot will struggle to break 103 on the downside with the risk of potential talking up of the USD. A move higher in spot is likely to be capped with offers expected ahead of this year’s high of 112.10.