We expect that in the next few weeks, the US dollar is capable of upward correction against the background of deteriorating global risk sentiment. From a technical point of view, we can also observe the formation of the key signals of a reversal that supports our bullish view of the short-term prospects of the US currency. We prefer to buy Call binary options on the US dollar against the Canadian and Australian currencies, as well as against the currencies of developing countries.
While the overall rate of employment growth has not met expectations and there was a revision of the data down in the past two months, the figures on the growth of wages in the agricultural sector cannot be called weak. However, most experts after Friday’s figures do not expect activity from the regulator in the first summer month.
We traded 7 times currency pair with the US dollar. We strictly adhere to the negative outlook for the US currency by buying 6 options against the dollar and 1 – in favor of the US currency. Our forecast is conveniently coincided with the rally of European and commodity currencies against the US dollar earlier in the week. But then the US dollar recovered a part of lost positions after the release of US labor market data.
Low Yield of EUR, as a Leading Factor
We believe that the euro will outpace high beta (beta coefficient is a measure of market risk, reflecting the changes in sensitivity, in this case, the rate of one currency to another with the improvement or deterioration of risk sentiment) emerging-market currencies and commodity currencies against the background of the ECB’s inability to overcome deflationary forces. In this environment, decline in inflation expectations leads to an increase in real yields, as the nominal yield is difficult to be lowered below. We believe that the euro can still be negatively influenced by political events related to the upcoming referendum in June in the UK.
Euro spent mixed week marked by significant growth at the beginning and the end reduction. Earlier this week, we bought a Call binary option on EURUSD currency pair, and at the end of the week – a Put option on EURCAD currency pair. The yield on the single European currency is now at historic lows, so you must be very careful in the opening of long-term positions on the euro.
JPY Uptrend Has Force
We hold a positive view on the yen for several reasons. Firstly, real yields in Japan are growing against the background of the Bank of Japan has not been willing to implement additional stimulus. Secondly, such pairs as USDJPY and AUDJPY are facing the risk of breaking key levels on the downside, which activates hedging flows and repatriation of Japanese accounts. It can stimulate even more significant volumes of the yen purchases. We believe the purchase Put binary options on CADJPY currency pair is the most attractive investment.
As now and a week ago, we put on the growth of the Japanese yen, buying 3 binary options on the yen rise and 1 – on its fall. The Bank of Japan is clearly set priorities with respect to exchange rate policy, saying that it would resort to additional instruments only if the Japanese currency rise to a level of 90-95 yen per US dollar. Thus, the yen has still a great potential for loss.
The Swiss Franc Is Supported by the Real Rate of Return
In the near future, the franc may strengthen against emerging and high-yielding currencies, which will contribute to an increase in real yields and risk appetite worsening. In the medium-term, Brexit uncertainty and the rise of populism in Europe in relation to the problems of migrants should strengthen franc against the euro also. Since USDCHF in the short term can demonstrate an upward trend, we prefer to buy Call binary options on the franc against the currencies of developing countries.
We do not trade currency pairs with the Swiss franc last week, but most likely will be actively engaged in this in the near future, since yield of commodity currencies is constantly decreasing and systematic risks in the financial markets are growing. In such a situation, the attractiveness of the Swiss franc as a safe-haven currency increases significantly so Put binary options on AUDCHF and CADCHF currency pairs are attractive from the high yield point of view.