FxWirePro: Cross hedging with naked puts on USD/KRW and shorts on JPY/KRW call

This is synthesized recommendation of both fundamental and technical aspects.

We had advocated this trade call earlier also; we now continue to recommend holding a USD/KRW put funded by selling a JPY/KRW call.

Japanese industrial production fell by 2.2% in May as a publication of the Ministry of Trade and Industry this morning illustrates. How lucky for the yen that it currently benefits from Greece. However, imported strength of this nature is usually not sustainable. Industrial production on the other hand will remain weak.

KRW made a gap up opening with doji and shooting star candlestick patterns. These bearish candles suggest indecision of sustainability in recent bull rallies of this pair. Volumes also did not confirm the recent rallies of this pair.

We see sensing overbought pressures on USDKRW, if you think any probable dips should not trouble dollar portfolio then add longs on USD/KRW 6M ITM or ATM puts at current juncture and simultaneously short ATM JPYKRW call. 

The above position should enhance profitability by deriving returns upto 0.87% on JPY/KRW side and 0.90% on dollar trade.

This is going to be legacy trades from before the global bond sell-off albeit one which serves a partial hedge to the pro-dollar exposure elsewhere in EM.

The mark-to-market has consequently benefitted from the setback to the dollar this week.