Although the bearish swings in the major trend of EURJPY seem to be threatening, you observe range bounded trend has been persisting from last fortnight or so (upper range at 124.0940 and lower range at 121.600 levels).

The ATM IVs of this pair is jerking below 10.5% from 1w to 1m tenors, while negative delta risk reversal numbers and IV skews are bidding for downside risks.

Fundamentally, it may give EUR some cushion on following fronts:

Economic growth is expected to pick up in Q4, but political risks abound in 2017.

Headline inflation is set to accelerate further, but underlying ‘core’ inflation shows no signs as yet of any meaningful rise.

ECB extends asset purchases until end-2017, but at a reduced monthly pace of €60bn from April.

By connecting the dots of fundamental factors, OTC indications with range bounded trend as stated above. The ongoing tight tug of war between bulls and bears in the sideway trend likely to persist. We think this lower IV time is quite conducive for option writers when underlying spot FX is stuck in range.

Two trades to sell rich EURJPY skew. The EURJPY volatility surface is offering very attractive opportunities, as ATM volatility is rich and 6m/1y skews are excessively priced.

We recommend a couple of trades taking advantage of both the volatility and skew premiums.

In the volatility space, going short a 6m variance swap provides extremely high-profit odds.

We keep the EURJPY bullish bias as a directional reflation trade, which can be advantageously expressed via a zero-cost 6m topside seagull strikes 114/123.5/128.