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China Holds Loan Prime Rates Steady for 14th Month as Economic Recovery Remains Uneven 
The US Federal Reserve is scheduled for its monetary policy for this week. We expect the fed to increase its policy interest rates by 0.25% at its 25th- 26thSeptember policy meeting, to move the target range up to 2.0-2.25%. That would be the eighth hike in total since December 2015. Many Federal Open Market Committee (FOMC) members have been signalling that another increase is likely at this point and a move is almost fully discounted in markets. As markets are already almost fully discounting the move there may not be much immediate reaction. The Committee is expected to maintain its projection of another rate hike in December with three more in 2019.
Ahead of the above event risk which is the major focus for this week, USDJPY OTC update is as follows:
Most importantly, please be noted that the positively skewed IVs of 3m tenors are signifying the hedging interests for the bearish risks. The bids for OTM puts of these tenors signal that the underlying spot FX likely to break below 110.50 levels so that OTM instruments would expire in-the-money.
While negative risk reversal numbers of USDJPY across all tenors are also substantiating bearish risks in the long run amid momentary upswings in the short-run. IVs for 1w tenors are shrinking away which is good for put option writers, and 3m IVs are rising which is good for put holders.
OTC positions of noteworthy size in the forex options market can stimulate on the underlying forex spot rate. The Market Pin Risk report shows large options expiring in the next 5 days. Red strikes indicate sizeable open interest close to the current forex spot rate. FX Options strikes in large notional amounts, when close to the current spot level, can have a magnetic effect on spot prices (in this case, USDJPY has the highest interest towards forward point at 110.50). The spot may trend around those strikes as the holders of the options will aggressively hedge the underlying delta.
Accordingly, couple of days ago the debit put spreads have been advocated, wherein short leg is functioning so far as the underlying spot FX keeps spiking, we would like to uphold the same strategy but with diagonal tenors on hedging grounds.
While both the speculators and hedgers for bearish risks are advised to capitalize on the prevailing price rallies and bidding theta shorts in short run and 3m risks reversals to optimally utilize delta longs.
At spot reference of USDJPY: 112.84 levels, buy a 3M/1w 113/110.50 put spread (vols 7.26 vs 6.44 choice), wherein short leg is likely to function as the underlying spot FX keeps spiking, we would like to maintain the ITM long leg with the diagonal tenors on hedging grounds. Courtesy: saxobank, sentrix
Currency Strength Index: FxWirePro's hourly JPY spot index is flashing at -10 levels (which is neutral), while hourly USD spot index was at 63 (bullish) while articulating at (09:28 GMT). For more details on the index, please refer below weblink:
