Upswings on EURJPY rally, minor gains on BPS

The BoJ left its asset purchase program unchanged at both of its two April meetings despite some political (and then market) uncertainty to the contrary.

Given our skepticism that there would be a fresh policy message, given the logistical limitation surrounding the current program, our focus was on the half yearly revise to the Bank's forecasts. On this front, the medium term inflation projections are still faithfully zooming in on the 2% objective, consistent with the unchanged policy stance.

Since we are anticipating only driving force to the EURJPY additional upswings in forthcoming days, the overseas traders with huge forex exposures in Euros are advised to hedge their risk with options instruments.

Here are some predetermined trade ideas that we have devised based on potential downside risk to Yen.

Option strategy: Sell a credit Put spread (Bull put spread)

We can establish this strategy by selling a Put option and purchase another Put at a Lower Strike Price with the same expiration date for net premium receivable.

This trade strategy is advisable only when the underlying exchange rate is projected to move higher or sideways so that put expires worthless and you keep the entire premium.

Use shorter period for expiration to take advantage of time decay and give lesser time for the stock to move against you.