USD/JPY options see prices swinging after weekend elections
Buckle your seatbelts, USD/JPY traders, because the options market is flashing signs of turbulence on Monday following weekend elections in Japan.
The currency pair has been orbiting the historically-significant pivot level of 152, with the options market pointing toward substantial risks attached to the election results given recent polling that the LDP may lose power.
The midpoint of overnight volatility is 12.4%, a notable premium to normally modest pricing for options expiring on a Monday. This high level of volatility introduces the possibility of USD/JPY gapping once election results are tabulated and Tokyo resumes trading next week.
Oddly, options also suggest spot will mean-revert from its initial move as focus turns to other event risks including a Bank of Japan policy decision and U.S. payrolls next Friday. Butterflies, option premiums that measure the risk of outlier moves, remain subdued in both the overnight and one-week tenors.
USD/JPY angst will rekindle as the week progresses. One-week volatility capturing the BOJ meeting and U.S. jobs data has risen to 14.7%, its highest level since September. Two-week options that incorporate U.S election results are 15.2%, levels seen as the yen carry trade unraveled in early August.
Technically, USD/JPY is in a holding pattern. A move below its nearby 200-DMA at 151.42 and the Oct. 21 high of 150.88 suggests it will track a thinning Icimkou cloud lower. By contrast, a close above this week's high of 153.19 and its upper Bollinger at 153.72 points to a test of 155, a level where some believe MOF intervention risks are reintroduced.
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Yen options https://tmsnrt.rs/4fl00ob
(Robert Fullem is a Reuters market analyst. The views expressed are his own.)
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