Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed 
U.S. Banks Report Strong Q4 Profits Amid Investment Banking Surge 
Bank of Korea Expected to Hold Interest Rates as Weak Won Limits Policy Easing 
ECB Signals Steady Interest Rates as Fed Risks Loom Over Outlook 
Stock Futures Dip as Investors Await Key Payrolls Data 
European Stocks Rally on Chinese Growth and Mining Merger Speculation 
China Holds Loan Prime Rates Steady in January as Market Expectations Align 
U.S. Prosecutors Investigate Fed Chair Jerome Powell Over Headquarters Renovation 
Oil Prices Dip Slightly Amid Focus on Russian Sanctions and U.S. Inflation Data 
Wall Street Analysts Weigh in on Latest NFP Data 
Indonesia Surprises Markets with Interest Rate Cut Amid Currency Pressure 
U.S. Stocks vs. Bonds: Are Diverging Valuations Signaling a Shift? 
Japan Declines Comment on BOJ’s Absence From Global Support Statement for Fed Chair Powell. Source: Asturio Cantabrio, CC BY-SA 4.0, via Wikimedia Commons 
US Gas Market Poised for Supercycle: Bernstein Analysts 
The US Federal Reserve delivered another quarter-point increase in interest rates at its December meeting, an outcome that was widely expected. Moreover, the Fed continued to signal that further hikes were warranted, though it lowered its expectations for next year with the ‘dot plot’ now showing two quarter-point increases in 2019 (down from three previously). Meanwhile, early this morning, the Bank of Japan unsurprisingly left policy unchanged with Governor Kuroda suggesting that it was too early to discuss the BoJ exiting from its current ultra-loose monetary policy stance.
OTC update and trade recommendations: Most importantly, please be noted that the positively skewed IVs of 2m 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 109.50 levels so that OTM instruments would expire in-the-money.
While negative risk reversal numbers of USDJPY across all tenors are also substantiating downside risks amid any momentary upswings in the short-run. IVs for 2w tenors are on lower side which is good for put option writers, while 2m IVs are on higher side 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 spot may trend around OTM put 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, 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: 111.83 levels, we advocate buying a 2M/2w 113.723/109.00 put spread on Fed and BoJ monetary policies (vols 7.52 vs 6.35% choice), wherein short leg is likely to function if the underlying spot FX keeps spiking, we would like to maintain the ITM long leg with the diagonal tenors on hedging grounds.
Currency Strength Index: FxWirePro's hourly JPY spot index is flashing at 82 levels (which is bullish), while hourly USD spot index was at -61 (bearish) while articulating at (09:00 GMT).
For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex
