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GBP: GBP/USD Bull Run Extends, Key M/T Targets in Sight

GBP
  • GBP strength into the London close has helped GBP/USD again print the best levels since mid-'23. On the weekly chart, a close at current levels would be the first above the 200-week moving average since the false break last year, and would open M/T targets at 1.3142 - the 76.4% retracement for the Jun'21 (post COVID high) - Sep'22 (Truss budget low) downleg.
  • For EUR/GBP, weakness through the June low puts the cross at the lowest level since Aug'22. We wrote earlier today that this resumes the downtrend and would place the immediate focus on 0.8366, the 2.236 projection of the Apr 23 - 30 - May 9 price swing.
  • While vols have normalized considerably (back to ~4 points from mid-June's ~6 points) since Macron's snap election call, there remains a bias toward downside insurance via options, evident in both the popularity of EUR/GBP puts, and the 0.25ppts gap between 3m risk reversals and the rolling 12m average.
  • Should this trend be sustained, analyst consensus should come under further pressure from it's current 0.85.
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