The greenback's appreciation against all the major currencies sent one-week euro/yen implied volatility jumping almost a full percentage point to 10% on Thursday from 9.25%. Over the week, the euro fell against the dollar to USD1.1225 from USD1.155 and the dollar appreciated against the yen to JPY120.54 from JPY119.43. As a result the euro weakened against the yen over the week. Euro/yen was trading at JPY137.75 at the beginning of the week but declined to JPY135.5 by the end.
"Euro/yen is where the bulls and bears on the U.S. economy are going to meet," said David Bloom, currency strategist at HSBC in London. By buying euro/yen, you can effectively participate in a bullish strategy on the U.S. economy at zero financing with a stop/loss at JPY116, according to Bloom. The trading strategy works because bulls of the U.S. economy will buy dollars against the yen increasing the strength of the dollar against the yen, while bears will buy euros which will increase the strength of the single currency versus the dollar. The net result is that the euro will increase relative to yen. There are no financing costs since Japanese interest rates are so low and there is a stop/loss at JPY116 because the Bank of Japan will likely intervene if the yen falls below that level.
EUR/JPY Spot & One-Month Implied Volatility
