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FxWirePro-Gold Daily Outlook 
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JPY depreciated towards the end of April and has rebounded into May. Overall, JPY nominal effective exchange rate is almost flat (-0.3% as of writing) compared to the last release. Meanwhile, USDJPY rallied and once reached low-110 on May 2, on the back of USD appreciation.
Dear readers, before proceeding further into the core part of this article, we urge you to glance through below weblink where we advised 3 leg options strategy for hedging optimally.
Well, As USDJPY was well anticipated for price spikes, the pair has significantly risen from the lows of 104.629 levels to the recent highs of 110.036 levels amid the major downtrend, we’ve already advocated diagonal put ratio back spread about a fortnight ago.
For now, short leg (ITM shorts) of this strategy would have fetched attractive yields as the underlying spot FX has significantly spiked above, while long legs are yet to function having two months of expiry.
The positively skewed implied volatilities of 2m tenors signify the hedging sentiments for the further downside risks, this appears to be conducive for put option holders.
This bearish sentiment is substantiated by the bearish neutral risk reversal (RRs) numbers in longer tenors, negative RRs indicate the mounting hedging sentiment for the bearish risks appears to be intact. Positive shifts in shorter tenors are interpreted as deceptive rallies likely to opportunities for smart short hedgers
Bearish USDJPY scenarios are anticipated up to 100 if:
1) The global investors’ risk aversion heightens significantly,
2) Prime Minister Abe steps down and
3) Trump administration starts vehemently criticizing Japan’s trade surplus against the U.S.
Potential trigger events:
BoJ meeting (June 15), End of Japan’s Diet session (June 20), Developments related to US trade policy, North Korea, and Abe scandals.
If you ponder upon cost effectiveness and wouldn’t like to divert exposure, we advocate upholding 2m USDJPY 108.388 put options (2 lots), (vanilla: 0.75%, spot ref: 109.459).
Skeptic investors can even deploy a 2:1 put back spread again by buying a number of puts at a higher strike and buying twice the number of puts at a lower strike.
The short leg with narrowed expiry likely to benefit time decay advantage which in turn reduces hedging cost on the long leg of OTM put.
Currency Strength Index: FxWirePro's hourly JPY spot index has shown 132 (which is highly bullish), while hourly USD spot index was at 24 (mildly bullish) while articulating at 08:19 GMT. For more details on the index, please refer below weblink:
http://www.fxwirepro.com/currencyindex.
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