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USD/JPY pair trading with risk - SocGen

FXStreet (Delhi) – Research Team at Societe Generale, suggest that the USD/JPY technicals appear bearish, but downside volatility is cheap given the disconnection between the spot and the skew.

Key Quotes

“The US soft patch is causing dollar longs to be unwound, and unchanged BoJ policy on 30 October would trigger the asymmetric USD/JPY bearish risk.”

“Normalisation of the current dislocation between USD/JPY and Nikkei would pressure the FX rate to mean-revert to 116, according to cointegration analysis. We recommend buying a 2M ‘appearing put spread’. The cost is marginally higher than a standard put spread strikes 118/117, but provides downside exposure until 115.

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