Several important economic releases were announced last week and they have important implications for traders. For starters, there was a major announcement from the Bank of Japan, and the US economy reported growth figures that were lackluster in Q4, 2015. With negative interest rates in Japan, there are fears that reciprocal measures will be adopted by other countries to remain competitive. Now there are cracks beginning to form in the US economy and the US has also ended a 40-year ban on the export of crude oil. China continues to feel the pressure from plunging growth figures and emerging market economies are facing steep revenue declines as commodity demand plunges. In the US, the greenback is proving to be resilient and placing tremendous pressure on commodity prices for foreign buyers.

1 – Currencies Trading: Consider placing Put Options on the JPY

The recent move by the Bank of Japan (BoJ) to reduce interest rates into negative territory has had a profound effect on the JPY. The problem in Japan and many other developed economies is deflationary pressures. We are seeing lacklustre economic growth as prices are being dragged down by slack demand and plunging commodity prices. The Bank of Japan surprised everyone recently with a decision to reduce interest rates on bank deposits to negative territory – effectively making it cost depositors money to keep their money in the bank. The reason why the BoJ has adopted this measure is to encourage a sharp increase in overall economic activity.

By ‘forcing’ people to spend money and to borrow money, the hope is that inflation will increase. But it is seen as a negative move for the JPY. But now we are seeing other concerns taking root in other parts of the world as European leaders are concerned that the EUR will be losing ground to a more competitive JPY. This means that currency wars may ensue and the EUR may also depreciate further if the ECB acts in a similar way. Therefore consider placing PUT options on the JPY, with an eye on the ECB and its policy actions this week.