I don’t pay as much attention to the markets these days – but when I do, my focus is primarily on rates, forex and gold. Today we’ll hit on some currencies because they present interesting trades on a regular basis, with the ability to use options on ETFs in order to implement ideas and manage risk.
First up is the Euro. I saw this article about how Draghi and ECB members are getting worried about deflation, with the single currency getting stronger against the US Dollar. Arguably the ECB has been the least aggressive in its monetary policy and, as a result, the Euro is up near 1.40 (after being as low as 1.275 last August). Which is why I fully expect some action in the next few months, consistent with the piece from Bloomberg. And why I think it is time to get positioned with some puts on the FXE.
Next is the Yen. I posted a few weeks ago about a cup-and-handle in the chart, foretelling Yen weakness ahead. Given the difficulties that Abenomics has had in achieving its goal. I fully anticipate more JGB purchases by the BOJ. Even the chart suggests that the Yen is at support levels and unlikely to get much stronger from here. My play is to purchase puts on the FXY.
Clearly both trades would suggest dollar strength ahead. And while the Dollar Index has been getting hammered lately, it’s approaching levels that have functioned as support in the past.
