The shortened Independence Holiday week is opening with a slightly firmer US dollar, following last week’s sell off after the Fed interest rate statement.  As anticipated, the Fed moved to tighten interest rates by another 25 bps. The statement which followed was considerably less hawkish than expected.  The central bank cited inflationary data and economic growth as drivers for further interest rate moves.  As a result, close attention will be paid to this week’s ISM release, as well as the Non-farm payrolls report.  

The volatility market is quiet and heavy ahead of tomorrow’s US holiday.  Skews are unchanged from last week with the market favoring JPY calls and EUR calls over respective put options.

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 individual’s views.

View:  EUR/USD will remain range bound this week.
Trade:  Purchase a 1 week EUR/USD Double No Touch Option

View: USD/CAD will not trade lower over the next week
Trade:  Purchase a 1 week USD/CAD No touch Option

View:  GBP/USD will move to the upside this week
Trade:  Purchase a 1 week GBP/USD One Touch Option

View:  USD/JPY will break out in either direction this week
Trade:  Purchase a 1 week USD/JPY Double One Touch Option

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.