is there a market forward curve on USD/JPY, so that we know what the market is implying on the future USD/JPY trend?
A swap or forward has nothing at all to do with the trend of the underlying currency pair. Its a simply interest rate calculation.
Swaps are an interest rate calculation. You're taking delivery of a currency or commodity for a future date. You're speculating on the change in the cost to carry to that date or hedging a payable or receivable you have on that date in the future. Yes you're taking a position in the underlying too but thats going to move one for one with spot.
I have little knowledge of swaps/forward, just starting out to learn but read an article on how someone may use forward on USD/JPY to imply future USD/JPY trend? thank you for your patience xflat, but how would you answer the question is there a market forward curve on USD/JPY, so that we know what the market is implying on the future USD/JPY trend?
I traded currency options for 10 years both as a MM on the CME and PHLX and from the desk of a large bank, but I have not been in that market for 10 years. There may be some speculation premium in the swap market... Since you asked me for my opinion I would say no. If there is a lot of swap settlement on the books for a particular date the market for that date may be skewed one way or another. You'll see this around the standardized futures dates. There surely is speculation premium in the swap in the form of speculation on interest rates. The further you go out in time the greater that interest rate speculation is and thus the wider the markets in the saps are. Consider this... since swaps are currency for delivery on a date in the future you are already speculating on the value of the spot currency. If you called our desk and ask for a 3 year forward we would have to take the other side of your trade, therefore we'd now have both currency exposure and interest rate exposure so we're going to have to hedge that in some way. If we had a lot of risk already on our book we'd skew the market to off set that risk. Again this is all about interest rate speculation not currency direction speculation.
I remember doing options and dealing with implied volitility. The difference between actual and implicit volatility can thus be regarded as an indicator of the expected development in the market risk from the present levels. An indication of the expected development in the market risk can also be given by an implicit-volatility forward curve. The forward curve is drawn by deriving the implicit volatility from option premiums on a given date for options with varying maturities. Implicit volatility which declines with the maturity of the option yields a downward sloping forward curve, reflecting market expectations of a decrease in the market risk. as basic as I may sound, does a USD/JPY forward curve exist? Does it offer any value in terms of future implied direction of USD/JPY? (in somewhat same manner implied volitility offer some prediction levels?)