Analysts at Bank of America Merrill Lynch recommend selling a 3-month one-touch option at 125.00 in USD/JPY versus buying a 6-month one touch at the same price.
“If we learned anything at all in 2014 about investing, it is that the right trade, when it is crowded, often becomes the wrong trade. In other words, it sometimes pays to take the other side when positioning becomes too one-way.
Identifying when a trend has gone too far and is set to reverse is not easy, but this is why understanding value and valuation has never been more important. Understanding positioning has never been more crucial as lower dealer risk appetite means markets are more prone to overshooting.
USD/JPY has attracted a lot of attention lately. We think its recent surge is difficult to justify. While we expect it to move higher in 2015, we think the risk of a short-term correction has grown. In particular, we think the market may be overestimating the ability of Japan’s Liberal Democratic Party (LDP) to retain its two-thirds majority and the willingness of the BoJ to increase quantitative easing again in the near future.”
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