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GBP: GBP/USD's Show Below 1.25 is Sign of Fragility

GBP
CEEMEABulletUKMarketsForeign Exchange Bullets
  • GBP/USD's run below 1.2500 on relatively little news or cross market flow should be seen as a sign of fragility - particularly as it exposes the bear trigger at 1.2476. Weakness through here puts the rate at the lowest level since May and would resume the downtrend posted off the September high.
  • Having started the European session pretty flat, GBP is now the poorest performer in G10, keeping the rate within range of today's larger options interest at 1.2500 (£200mln) and $1.2510 (£398mln) which could draw focus following the weekly jobless claims.
  • GBP vols firmed into year-end and remain at well-elevated levels. 3m vol north of 8 points has been supported by the contract capturing Trump's inauguration in just over two weeks time, as well as the next two BoE decisions - across which markets price ~80% likelihood of the MPC resuming the easing cycle.
  • Any firming of rate cut pricing could follow a weak turn out from the Jan15 Dec CPI print - and would call into question the sustainability of the Q4 weakness for EUR/GBP. Price remains below the 50-dma of 0.8315 but a break and hold above here would be bullish reversal signal.
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  • GBP/USD's run below 1.2500 on relatively little news or cross market flow should be seen as a sign of fragility - particularly as it exposes the bear trigger at 1.2476. Weakness through here puts the rate at the lowest level since May and would resume the downtrend posted off the September high.
  • Having started the European session pretty flat, GBP is now the poorest performer in G10, keeping the rate within range of today's larger options interest at 1.2500 (£200mln) and $1.2510 (£398mln) which could draw focus following the weekly jobless claims.
  • GBP vols firmed into year-end and remain at well-elevated levels. 3m vol north of 8 points has been supported by the contract capturing Trump's inauguration in just over two weeks time, as well as the next two BoE decisions - across which markets price ~80% likelihood of the MPC resuming the easing cycle.
  • Any firming of rate cut pricing could follow a weak turn out from the Jan15 Dec CPI print - and would call into question the sustainability of the Q4 weakness for EUR/GBP. Price remains below the 50-dma of 0.8315 but a break and hold above here would be bullish reversal signal.