Today, there are important FX option expiries for EUR/USD and USD/JPY. The EUR/USD expiry is at the 1.1700 level. This pair has been rising earlier this week and may help limit any downward movement, especially as the dollar weakens ahead of trade agreements expected before the August 1 deadline. The USD/JPY expiry is at 147.00, but it’s not likely to have a major impact on the market. Traders are focusing on the US-Japan trade deal and its effects. At the same time, the yen is unstable due to economic relief expectations and developments from the Bank of Japan, compounded by ongoing political uncertainties.

Derivative Expiries and Market Impact

According to Low’s analysis, derivative expiries can act like short-term price anchors. For EUR/USD, large option expiries are closely gathering around the 1.0800-1.0850 range, which may prevent significant drops in the coming weeks. Traders should keep an eye on these levels as possible support, especially as the dollar’s momentum slows. The latest Eurozone inflation data adds complexity, rising unexpectedly to 2.6% in May. While the European Central Bank may still cut rates in June, persistent inflation makes future cuts less certain. This uncertainty could support the euro, making selling out-of-the-money puts a viable strategy to gather premium.

Policy Divergence and Market Risks

For USD/JPY, the spotlight on policy divergence has become even more crucial. With the pair near 157, the market is testing the patience of Japanese officials. Just weeks ago, there were suspicions of official intervention when the exchange rate surpassed 160. This history makes the 157-160 range a high-risk area with significant volatility. The considerable interest rate difference still supports a higher USD/JPY, but sudden intervention from the Bank of Japan is a real threat, creating tension between fundamentals and policy risk. Therefore, our derivative strategy should prepare for this potential volatility increase. Buying straddles or strangles could be a smart way to position for significant price swings in USD/JPY, allowing us to profit whether the pair rises sharply or is pushed down by further intervention. Create your live VT Markets account and start trading now.

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