Analys från DailyFX
GBP/USD – How Much Volatility Do Options Tell Us to Expect on the BoE?
What’s inside:
- One-day implied volatility currently at 18.7%, high but not unusually high
- Suggests a 1-stdev range 13078-13336 on today’s BoE announcement
- Key price levels outlined relative to projected one-day and one-week ranges
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In the following table, you’ll find levels of implied volatility (IV) for major USD-pairs looking out over the next one-day and one-week time-frames. Using these levels, we’ve derived the range-low/high prices from the current spot price within one-standard deviation for specified periods. Statistically speaking, there is a 68% probability that price will remain within the lower and upper-bounds.
GBPUSD one-day implied volatility at 18.7%, which is nothing unusual; would likely require a material surprise by the BoE to prove underpriced
Later this morning at 11:00 GMT time, the Bank of England is expected to stand pat at 0.25% on its record-low benchmark rate and keep its asset purchase target at £435b. While this is the expected outcome, the potential catalyst for volatility is on the split among voting members. At the last meeting, the MPC voted 7-2 in favor of keeping rates unchanged. Another 7-2 vote would be taking a ‘wait-and-see’ approach, which may put pressure on sterling as my colleague, David Song, pointed out in this piece. That could certainly be the case given the large run-up into the meeting over the past week-and-half (yesterday aside). With cable having had a sharp rise, a hawkish stance with more members voting in favor of raising the benchmark rate could provide a boost. But with GBPUSD already at lofty levels, a 6-3 vote may not provide the catalyst needed to push cable much higher in the near-term.
What is the options market projecting for today, over the next week?
One-day implied volatility at 18.7% is high, but not through the stratosphere high. It was over 18% at one point yesterday morning, too. Looking back at last week, USDCAD implied volatility heading into the BoC meeting was nearly 23%, which turned out to be a little underpriced as the central bank surprised with an increase in rates. But keep in mind, there was a 44% probability of a rate increase in Canada, none is expected in the UK today. That would indeed be a big surprise and implied volatility would prove to have been grossly underpriced. But again, that is the highly unlikely scenario.
The projected one-standard deviation range for today clocks in between 13078 and 13336. The upper threshold is just above yesterday’s high, and implies we aren’t likely to sustain trade beyond yesterday’s high by the New York close. The one-week projected high is of interest, with the 13402 level right in the vicinity of an upper parallel extending higher from since February and near key resistance formed not long after the ‘Brexit’ vote. Should we see further strength into the 13400/13500 area over the near-term, look for price action to validate the area as resistance and a spot from which cable may make a material turn lower. Looking on the downside, neither the one-day or one-week projected lows are near any price levels of interest.
For other currency volatility-related articles please visit the Binaries page.
GBPUSD: Daily
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—Written by Paul Robinson, Market Analyst
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What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
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EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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