In next two months will see several developments, including notably the UK Brexit vote and the June FOMC meeting. 

While, the EUR/JPY 2m risk reversal is trading at extreme historical highs in favour of yen calls, close to the peak at -2.5 vols (See above graph) and within this tenor risk reversal strategy encompasses above stated risky events.

Thus, buy EUR/JPY 2m put spread 1x2, strikes 121.692/119, this strategy is short volatility, which is attractive as the 2m implied vol is trading one volatility point above the realised volatility (positive risk premium).

The profile is however selling convexity, such that a very fast downside move would deteriorate the mark to market.

In that event, investors may have to dynamically manage the delta to avoid losses.

On data front, we continue to maintain our bearish stances in this pair as the ongoing downtrend to prevail further as Japan produced healthy trade balance numbers, Japan recorded a 823.47 JPY billion surplus in April of 2016, compared to a 58.34 JPY billion deficit a year earlier and beating market consensus of a 492.80 JPY billion surplus.

It is the largest surplus since March 2010 as exports dropped by 10.1% YoY while imports shrank at a faster 23.3%.

But their manufacturing PMIs and industrial activity has reduced and missed the forecasts, PMIs were at 47.6 vs forecasts at 48.3. While, industrial activity missed the forecasts, prints at 0.1% vs 0.7%.

The competitive advantage is that the positive theta makes it a natural buy-and-hold strategy, as the structure pays off its maximal leverage if the spot trades close to the 119 strike only near the expiry.

The options market is pricing that yen appreciation will be more volatile than a yen fall.

This does not necessarily mean that the spot will move significantly but rather that downside price action is expected to be more erratic.