FxWirePro: Sterling still edgy after HoC Brexit votes, mounting hedging sentiments in sync with FX projections ahead of less likely hawkish BoE

A brief rally, on the back of the UK Government winning the vote yesterday, held under the highlighted resistance in the 1.3230-1.3290 region. The sterling has failed to make any real headway after the UK Government won a key vote on the Brexit bill in the House of Commons yesterday.

While Focus today turns to the Bank of England policy announcement. Having got cold feet at last month’s meeting following weak Q1 GDP data, the MPC is likely to wait until August, the BoE was knocked off their hawkish stance recently as a slump in economic figures for the UK's economy that was expected in the first quarter threatens to slip into the second half of the year.

Momentum remains down, but we do see support in the 1.3110 regions, ahead of significant medium-term support in the 1.30-1.2935 region. We are still awaiting evidence of a medium-term base developing at these lower levels, so are watching how prices trade around the main support regions.

We reckon the bear cycle that started back in 2007 at 2.1160 completed at 1.1490. On a multi-year basis, this suggests mean reversion back to 1.50-1.60 in a long run again, but not in any near future.

One can observe the increase in negative risk reversal numbers of GBP pairs in short run that signify the hedging sentiments for the bearish risks and vice versa in the long run which is well in line with our above-stated projections.

Let’s glance at GBPUSD sensitivity tool, the positively skewed IVs of 3m tenors are signaling the hedging interests in the bearish risks, 3m bids are upto 1.27 levels. As a result, OTM puts strikes likely to expiring in-the-money.

Accordingly, FX options transactions are entered into as a hedge against an unfavorable probable future event. Foreign exchange options (also known as FX, forex or currency options) are contracts where the buyer has the right, but not the obligation, to exchange currency on a certain future date at the exchange rate and in the amount fixed at the time of entering into the transaction.

Currency Strength Index: FxWirePro's hourly GBP spot index is flashing -114 (which is bearish ahead of BoE monetary policy today) while articulating (at 09:49 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex

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