We believe that the strong fundamentals of the US economy will further push the USD that recently has underperformed its counterparties. However we believe that in the long run the currency will appreciate.
We suggest two ways to take advantage of this outlook:
First by selling put options on the USD/JPY strike 94.00 maturity May13 to profit from the recent spike in the implied volatility and pocket the huge premium. For several reasons economics fundamentals, monetary policy and finally yield attractiveness of the US bond market, especially for longer maturities we believe that the JPY is to depreciate and the USD to appreciate, making this option expire worthless. Risk management is really hard with options. Our suggestion is to sell everything if the pair reaches 91.0.
Secondly, we suggest taking a long position in the dollar index. Of course more capital should be invested in this idea as it carries less risk. Moreover, in an environment with much uncertainty this asset usually acts as insurance against further deterioration of fundamentals.