FxWirePro: CAD/JPY Spot, OTC Updates and Options Trading Strategy Ahead of Canadian Labour Data

CAD quietly consolidating at the mid-point of recent range ahead of Canadian job data announcement that is scheduled today; the pair remain mid-term bullish. While crude oil has responded positively to developments, with WTI inching below $62 levels, leaving the CAD’s broader under-performance on the day looking a little questionable. 

The unemployment rate in Canada stood at 5.8 percent in February 2019, the highest level since October, as more people searched for work (+55.1 thousand). The economy added 55.9 thousand jobs, entirely driven by full-time positions (+67.4 thousand) while part-time employment fell (-11.6 thousand).

Contemplating all above factors, although it is sensed that all chances of CAD may look superior over Japanese Yen in the near-term future; we advise balanced-hedging perspective but to favor slightly CAD’s appreciation in near-terms through below recommendations.

OTC Updates and Options Trading Strategy (CADJPY): 

Positively skewed CADJPY IVs of 3m tenors have still been signaling bearish risks, the hedgers’ interests to bids for OTM put strikes up to 81.500 levels indicating downside risks in the medium terms. Please observe above technical chart for minor upswings in the short run that are to be capitalized for interim longs, while upholding short hedge as the major downtrend remains intact. Accordingly, we advocated options strips strategy to address both short-term upswings and major downtrend.

We’ve been firm to hold on to this strategy on both trading as well as hedging grounds, unlike spreads, combinations allow adding both calls and puts at a time in our strategy.

Buy 2 lots of 3m at the money delta put option and simultaneously, buy at the money delta call options of similar tenors. It involves buying a number of ATM call and double the number of puts. Please be noted that the option strip is more of the customized version of options combination and more bearish version of the common straddle. 

Huge profits achievable with this strategy when the underlying currency exchange rate makes a strong move on either downwards or upwards at expiration, but greater gains to be made with a downward motion. Hence, any hedger or trader who believes the underlying currency is more likely to spike upwards in short run but major downtrend can go for this strategy.

Cost of hedging would be Net Premium Paid + brokerage/commission paid. Courtesy: Sentrix 

Currency Strength Index: FxWirePro's hourly CAD spot index is flashing at 15 levels (which is bearish), hourly JPY spot index was at -92 (bearish) while articulating at (07:57 GMT). 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex