A notable feature of this year’s FX moves has been the difference in the performances of the EUR and the JPY, notes BNP Paribas.
"While a collapse in the global risk environment in the first six weeks of the year boosted both funding currencies significantly, the JPY gained more. This difference has persisted even since equity markets troughed on 11 February, with the EURJPY cross continuing to fall even as risk appetite improved," BNPP adds.
"We view the disparate performance of the two, structurally similar currencies difficult to justify and think options market pricing and market positioning for a further decline represent an opportunity to position for a recovery in EURJPY," BNPP advises.
Given this, BNPP suggests entering a 3-month zero cost risk reversal, selling a 120 put and buying a 127.55 call (EURJPY spot ref 124.15). The trade is exposed to unlimited downside below 120, but BNPP would look to unwind the recommendation if losses approach 1.5%,"
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