Dollar Gains as Yen on the Defensive Before Trump-Abe MeetingBy
Demand for dollar-yen vanilla calls and barrier options
Pound erases loss as U.K. factory-output data beats forecast
The dollar traded higher versus most of its Group-of-10 peers after U.S. President Donald Trump’s promise to overhaul taxes for businesses boosted risk sentiment. The yen was on the back foot ahead of a meeting between Trump and Japanese Prime Minister Shinzo Abe.
The Bloomberg Dollar index was on course to snap a six-week decline. Yet, as investors await details of Trump’s tax measures and with positioning already heavily skewed toward dollar-longs, the index hasn’t managed to set a fresh high for the week.
Traders report buying interest in dollar-yen in all forms, be it outright cash buying, vanilla calls or barrier option structures, while selling interest was mainly centered on profit-taking. At the same time, demand to hold options that benefit from an increase in implied volatilities also emerged.
- JPY is lower versus all its G-10 peers except the NOK; market looks to be short gamma on the upside in USD/JPY, and a move above 115.00 could accelerate gains: trader.
- The pound drops; U.K. industrial output came in better than estimated; cable orbited 1.2500 handle throughout most of the London session; remains under pressure from Reckitt Benckiser Group deal to buy Mead Johnson Nutrition Co. for $16.6b; was below 1.2450 as New York traders come in
- Euro stays above 55-DMA support at 1.0606; bids within 1.0600-20 are yet to be tested, with more seen at 1.0575-80: traders; sizable expiries at 1.0600 (EU1.3b) and 1.0650 (EU1.1b).
- Norwegian krone drops as slowing inflation prompted talk of another rate cut by Norges Bank; NOK/SEK at 1.0636, pares most of its gains on Thursday and stays supported by 21-DMA, now at 1.0600.
- Aussie leads gains versus the dollar, though has traded sideways since Tuesday with narrowing ranges.
- Some information comes from FX traders familiar with the transactions who asked not to be identified because they are not authorized to speak publicly.