FxWirePro: Intricacies key data events of Canada - CAD/JPY OTC outlook and options strategy

Canada releases its latest employment figures. The unemployment rate in Canada fell to 5.4 percent in May of 2019 from 5.7 percent in the previous month and below market expectations of 5.7 percent. It was the lowest since comparable data became available in 1976. The economy added 27.7 thousand jobs, entirely driven by full-time positions. Compared with May 2018, employment grew by 453,000 or 2.4 percent, reflecting gains in both full-time (+299,000) and part-time (+154,000) work.

Data has been impressive recently, with this week’s trade data moving back to a surplus and the Canadian dollar outperforming. 

However, today’s data announcement comes ahead of next week’s Bank of Canada meeting. Rates are expected to remain unchanged, so Governor Poloz’s update and forward guidance will be key.

OTC Updates and Options Strategy: 

The positively skewed CADJPY IVs of 3m tenors have still been signaling bearish risks, the hedgers’ interests to bids for OTM put strikes up to 80.500 levels indicating downside risks in the medium terms (refer above chart). Please also observe the above technical chart for the major downtrend. 

Accordingly, we advocated options strips strategy to address any abrupt upswings in short-run and the 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 a 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 move. 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 & JPM

Currency Strength Index: FxWirePro's hourly CAD spot index is flashing at -81 levels (which is highly bearish), hourly JPY spot index was at -99 (bearish) while articulating at (11:07 GMT). 

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