FxWirePro: A glimpse at luring longs in USD vs JPY and NZD

We continue to expect USDJPY to trend gradually lower into next year given potential political risks including US mid-term election and Brexit which would cause JPY buying back over time, the depreciation trend of JPY has been more persistent than we originally expected.

The recent run of economic data has been strong, and speculators are extremely short NZD. That should propel NZDUSD higher near term, to 0.6850. Multi-month, though, our expectation that the US dollar will continue to strengthen, as the Fed hikes four more times over the next year, should see NZDUSD retesting 0.6425 levels.

Well, the long USDJPY trade was motivated by the prospect for a further adjustment higher in yields (USDJPY continues to have the highest sensitivity of any major currency to US yields), while the re-initiation of NZD shorts last week was a hedge for poor risk sentiment, ongoing CNY weakening and China tail risks to growth. 

Over the past week, the performance of these trades has been mixed. USDJPY trade has recouped some of its losses given the rebound in equities while the NZDUSD trade is underwater following positive news reports on the US-China agreement. The erratic nature of news flow is one reason why we had suggested NZDUSD shorts via options last week. The trade is now deep out of the money but we maintain exposure given tail risks to high beta FX as noted earlier.

Few traders might have been tempted for longs in USDJPY and shorts in NZDUSD, the trade updates are as follows:

Long 3m at-expiry digital NZD put/USD call (strike: 0.6195) for 15%. We would like to uphold the positions.

We favoured bullish USDJPY on 30thOctober and added longs in USDJPY accordingly. Marked at 0.36%. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly JPY spot index was at 118 (which is bullish), while hourly USD spot index was at -61 (bearish) at 13:14 GMT.

For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex