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The main event today is the US Fed’s monetary policy meeting tonight. We expect rates to remain unchanged at 2.50% and the message from the Fed to remain the same (i.e. it can afford to be patient).
The FOMC will hold a press conference at the end of its two-day FOMC meeting for the first time even though no new economic projections have been publicized. Fed chair Jay Powell is likely to use today’s press conference to drive on the Fed’s new communication strategy and to divulge that in view of the comfortable inflation environment the Fed can afford to wait and see patiently how the global and domestic economy develops before taking its next decisive monetary policy decision.
We witness fresh IV additions to USD among G10 FX space (refer above nutshell), while no considerable shift in risk reversals of dollar pair, except GBPUSD.
It is wise to be on top of market pinned risk as it indicates that such FX options strikes with large notional amounts, when close to the current spot level, can have a magnetic reflections on the underlying spot moves, which means spot may trend towards such strikes as the holders of the options will aggressively hedge the underlying delta.
We consider short correlation trades on USDCHF vs USDCAD as a way for playing the absence of tangible trends in the currency markets.
Weaker USD correlations intersect with tactically bullish GBP views most forcefully in long GBPJPY call options. Continue to run a GBPJPY vs USDJPY call spread switch; GBPAUD vs AUDUSD is also a viable alternative where there is more room for a correlation breakdown.
EURNOK downside, AUDUSD and USDCHF put spreads, USDCAD AED calls screen as the most attractive late-cycle opportunities via FX options. Courtesy: JPM & Saxobank
Currency Strength Index: FxWirePro's hourly EUR spot index is inching towards 68 levels (which is bullish), while hourly USD spot index was at 0 (absolutely neutral) while articulating (at 13:06 GMT).
For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex
