The trading week starts with the USD Index just above 90.25 as the USD has strengthened after last weeks FOMC meeting.  There was no surprise after the 25 bps move, but the Fed gave no indication of an immediate stop in hiking interest rates.  The USD seems to be doing well across the board and especially well against the higher yielding currencies as the yield differential narrows.  Important economic news includes the ISM Index on Monday and Initial Claims on Thursday.  Friday is a big day as Nonfarm Payrolls and the Unemployment rate numbers are released, which could have a major impact on the markets.

JPY has lost some strength the past few weeks even thought the Japanese equity markets have reached new highs.  The Tankan report for business sentiment was released and business sentiment fell compared to the previous report.  This has carried the USD/JPY all the way up the 118.50 level.  The JPY crosses were also weak as the EUR/JPY now closes in on the 143.00 level and the GBP/JPY now closes in on the 204.90 level.

Implied volatilities are up across the board except for USD/JPY which have been taken lower.  EUR and GBP start the week slightly weaker against the USD as volatilities are up for EUR/USD and GBP/USD.  EUR calls are modestly favored with the 25 delta risk reversals trading at 0.2/0.4.  JPY vols are up given the latest price moves and JPY calls are increasingly favored as the market continues to expect an end to their zero interest rate policy in the near future.  One month 25 delta JPY calls are trading at a premium of 0.6/0.9 over puts.

OPTION TRADE IDEAS

Below please find some strategies, which depending on your view might be applicable.  Please bear in mind that all of these trades can be applied to any of the currency pairs, which may be traded.  All barrier levels, strikes, triggers, payouts, and maturity dates can be tailored to each individualââ,¬â"¢s views.

Kathy Lien is the Chief Currency Strategist at FXCM.

Disclaimer: Transactions in options carry a high degree of risk. Purchasers and sellers of options should familiarize themselves with the type of option (i.e., put or call) which they contemplate trading and the associated risks. You should calculate the extent to which the value of the options must increase for your position to become profitable, taking into account the premium and all transaction costs.