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The DXY remains on the verge of key technical supports. EUR/USD and USD/JPY together comprise more than 70% of the index, and the respective technical pictures of the two pairs also look pivotal. It’s sensible to try to find diversification of the global USD risk via these pairs, as they would likely experience synchronised breaks.
Buy 2m Dual Digital, EUR/USD above 1.1475, USD/JPY below 108 Indicative offer: 12.5% (vs 25% for each of the individual digitals, spot ref: 1.1317; 108.929)
The FX option market is currently pricing the mid of the 2m implied correlation between EUR/USD and USD/JPY at -38%, which is fairly priced with respect to the corresponding realised correlation.
Last November, it peaked at -65%, meaning it is now nearly 30 points cheaper and at its lowest level since last summer (see charts), if the USD breaks lower decisively, this correlation would retrospectively appear even cheaper, as the realised correlation would dip towards more negative levels.
Risks associated with dollar are limited to the premium if not activated, the dual digital option is a European payoff requiring both the EUR/USD and the USD/JPY to trade beyond their trigger levels in order to deliver the notional amount at the expiry date. If one of the two conditions is not met at expiry, investors lose the premium initially paid.
