Olivier Korber, Research Analyst at Societe Generale, suggests to buy USD/JPY double-no-touch as the pair is set to consolidate longer. Key Quotes “After a vertiginous fall, the USD/JPY tested its 111 support three times in February-March and remained capped at 115, forming a new consolidation phase. The net effect of the quasi simultaneous Fed and BoJ April meetings should essentially preserve the range. The FOMC is unlikely to alter its call six weeks after having removed two hikes, while the BoJ’s credibility loss to weaken the yen is plainly discounted. Expression: Selling the range The even chance scenario: 50%. The USD/JPY 2m implied distribution (from the volatility smile) is pricing that the spot is 50% likely to trade between 110.20 and 116.10. This range is actually wider than the USD/JPY graphical range (resistance at 115). The American implementation: 12.8%. The price of a DNT has to be significantly lower because it would be knocked-out if any of its two barriers is hit at any time before the expiry. This is an American payoff while the implied distribution only represents the scenarios at a given future date. But the smile remains quite convex, meaning that OTM volatilities are elevated, discounting a decent likelihood for large deviations either way. Mechanics Buy USD/JPY 2m double-no-touch, knock-out 110.20/115.50 Indicative offer: 12.8% (spot ref: 113.30) This range corresponds to about 50% of the USD/JPY implied distribution in two months, making the leverage obtained via American barriers quite substantial. Risks USD/JPY breaking its range within 2 months Investors buying a double-no-touch cannot lose more than the premium initially paid. However, the option is knocked-out if the USD/JPY touches 110.20 or 115.50 at any time before the 2m expiry.” For more information, read our latest forex news.