The excessive yen skew premium Yen calls are in high demand for all crosses (see above graph) as the market is behaving in a risk-off way. As we wrote here and here, the yen probably met an inflexion point after months of strength.
It is bid this week just ahead of the election, but a Clinton victory remains the central scenario and would provide immediate relief.
A Trump victory would pressure the USDJPY towards 100 but a break would not at all be to the BoJ’s taste, whereas the Fed is edging closer to a December hike, making a new rebound likely. Selling outright yen volatility or skew is not a reasonable trade given the imminent risk event, but selling the yen skew premium as a leg of a relative value trade appeals.
Stay short EURJPY rather than USDJPY skew, the EURJPY 3m skew is larger than the USDJPY skew (-2.1 vs -1.8), so that selling the former provides a higher premium.
Moreover, the EURJPY skew exceeding the USDJPY is not consistent in times of EUR topside volatility. On the contrary, euro bullishness should dampen the EURJPY skew, which is, therefore, an attractive Sell.
The spread between EURJPY and EURUSD 3m risk reversals is now very elevated historically, as it is exceeding 1.5 vols (see above graphs).
It never happened between 2012 and 2015 and such a situation happened only very transitorily this year. We expect the gap between EURJPY and EURUSD skews to tighten.


Oil Prices Dip Slightly Amid Focus on Russian Sanctions and U.S. Inflation Data
US Gas Market Poised for Supercycle: Bernstein Analysts
Energy Sector Outlook 2025: AI's Role and Market Dynamics
Moody's Upgrades Argentina's Credit Rating Amid Economic Reforms
Geopolitical Shocks That Could Reshape Financial Markets in 2025
China's Refining Industry Faces Major Shakeup Amid Challenges
Mexico's Undervalued Equity Market Offers Long-Term Investment Potential
Trump’s "Shock and Awe" Agenda: Executive Orders from Day One
Indonesia Surprises Markets with Interest Rate Cut Amid Currency Pressure
China’s Growth Faces Structural Challenges Amid Doubts Over Data
Goldman Predicts 50% Odds of 10% U.S. Tariff on Copper by Q1 Close
U.S. Banks Report Strong Q4 Profits Amid Investment Banking Surge
Urban studies: Doing research when every city is different
U.S. Treasury Yields Expected to Decline Amid Cooling Economic Pressures
Stock Futures Dip as Investors Await Key Payrolls Data
Global Markets React to Strong U.S. Jobs Data and Rising Yields
S&P 500 Relies on Tech for Growth in Q4 2024, Says Barclays




