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GBP Options See pre-CPI Support, But Vols Contained Just Below Last

OPTIONS
  • The front-end of the GBP vol curve has seen support from the off Tuesday, with the recovery off Friday’s lows in GBP/USD and the capturing of US, UK CPI data risk boosting the overnight vol contract.
  • An overnight straddle on GBP/USD prices a 60-65pip swing for the Wednesday expiry, the widest break even since the BoE decision earlier this month, although slightly shy of the vol premium added ahead of the September CPI release printed last month.
  • With the S/T technical backdrop looking more positive, a 60 pip rally in the pair would put spot higher, but still shy of the next key resistance layered between 1.2428, the Nov 6 high, and 1.2438, the 200-dma.
  • As mentioned late last week, options dynamics across GBP are making for a calmer balance of risks through end-2023. Front-end risk reversals last week touched 0.00 (i.e. No vol skew in favour of either puts or calls) for the first time in three years, and the GBPUSD SMILE holds notably flatter having reversed the sharp skew toward OTM puts at the beginning of October.
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