The GBPUSD playbook – how Brexit could play into price moves
If you like volatility GBP is the place to look, and we can see one-month GBPUSD implied volatility (vol) at 14.0%, relative to say AUDUSD and EURUSD vol at 9.34% and 7.57% respectively.
To put this into perspective, the implied move in GBPUSD over the coming month sits at 413-points from spot, and this expiry encompasses the expected Commons vote on 10 December. As we can see on the daily chart, a 413-point move takes us into the top of the multi-month range, as well as the 38.2% Fibo of the April to August sell-off. How price reacts around here would be very interesting.
Volatility is naturally directionally agnostic, so a 413-point move could easily take us through the lower esculents of the range at 1.2600 and potentially into 1.2200.
The interesting part is that that we have seen encouraging signs of cooperation between Theresa May and the EU, involving a Free Trade area with a customs arrangement. This comes at a time where various factions of the Tory party have failed to garner the needed 48 letters to prompt a confidence vote. So, the prospect of May being removed from power has diminished for now, and that has supported GBP.
Once this weekend’s EU Summit is out of the way, the real attention turns to whether the draft Withdrawal Agreement passes through the Commons and at this point that seems low. Therefore, it seems logical that GBP could be sold into the vote, although, we can already see from the weekly CoT report and GBPUSD risk reversals that traders are already heavily short the GBP and have paid up for GBP put vol. The downside in cable is therefore cushioned to an extent, but should the MPs in the Commons vote down the deal we will likely see another sharp move lower.
Vols imply a move into 1.2400, so a move into say 1.2200 and I would be a willing buyer of GBP, as my base-case is that May will head to Brussels to re-work the deal, and on the second attempt in the Commons and it may pass, causing a decent rally as bearish positioning is unwound.
As you can see, the Brexit playbook is diverse, but vols tell us a decent move could be on the cards and this has huge implications for stop placement and position sizing.
Disclaimer.
Trading leveraged products carries a high level of risk and may result in you losing substantially more than your initial investment. Pepperstone Group Limited is licensed and regulated by the Australian Securities and Investments Commission (AFSL 414530). Pepperstone Limited is authorised and regulated by the United Kingdom Financial Conduct Authority (FRN 684312). This information not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation
To put this into perspective, the implied move in GBPUSD over the coming month sits at 413-points from spot, and this expiry encompasses the expected Commons vote on 10 December. As we can see on the daily chart, a 413-point move takes us into the top of the multi-month range, as well as the 38.2% Fibo of the April to August sell-off. How price reacts around here would be very interesting.
Volatility is naturally directionally agnostic, so a 413-point move could easily take us through the lower esculents of the range at 1.2600 and potentially into 1.2200.
The interesting part is that that we have seen encouraging signs of cooperation between Theresa May and the EU, involving a Free Trade area with a customs arrangement. This comes at a time where various factions of the Tory party have failed to garner the needed 48 letters to prompt a confidence vote. So, the prospect of May being removed from power has diminished for now, and that has supported GBP.
Once this weekend’s EU Summit is out of the way, the real attention turns to whether the draft Withdrawal Agreement passes through the Commons and at this point that seems low. Therefore, it seems logical that GBP could be sold into the vote, although, we can already see from the weekly CoT report and GBPUSD risk reversals that traders are already heavily short the GBP and have paid up for GBP put vol. The downside in cable is therefore cushioned to an extent, but should the MPs in the Commons vote down the deal we will likely see another sharp move lower.
Vols imply a move into 1.2400, so a move into say 1.2200 and I would be a willing buyer of GBP, as my base-case is that May will head to Brussels to re-work the deal, and on the second attempt in the Commons and it may pass, causing a decent rally as bearish positioning is unwound.
As you can see, the Brexit playbook is diverse, but vols tell us a decent move could be on the cards and this has huge implications for stop placement and position sizing.
Disclaimer.
Trading leveraged products carries a high level of risk and may result in you losing substantially more than your initial investment. Pepperstone Group Limited is licensed and regulated by the Australian Securities and Investments Commission (AFSL 414530). Pepperstone Limited is authorised and regulated by the United Kingdom Financial Conduct Authority (FRN 684312). This information not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation
Disclaimer:
Trading leveraged products carries a high level of risk and may result in you losing substantially more than your initial investment.
Trading leveraged products carries a high level of risk and may result in you losing substantially more than your initial investment.