April 13, 2023 08:35 GMT
Implied Pricing Tilts Higher as GBP/USD Nears Bull Trigger
- At the beginning of April, we wrote that the YTD consolidation phase for GBP/USD could give way to a more bullish medium-term view, as improving technical trends and a bottoming-out of negative newsflow open room for a correction higher. ( Full piece here )
- GBP/USD is again pressing on the early April highs and bull trigger at 1.2525, a break of which would turn focus to 1.2599, the Jun 7 2022 high. Beyond this mark, how much further could the pair run?
- Options-implied probabilities now see a 38% likelihood of GBP/USD trading above 1.2600 in mid-May (25% for above 1.27, 16% for above 1.28) – a notable improvement for the 20%, 12% and 7% implied pricing at the beginning of the month. Furthermore, the more benign price action in spot this year has depressed realised vols, feeding directly into the lowest levels for the front-end of the implied vol curve in twelve months – helping to mark down vols associated with OTM strikes, flatten the vol smile, and cheapen expressing an view via options.
- The one-month timeline now captures both the May BoE and FOMC decisions – ahead of which a 25bps rate rise is 80% priced for each bank. A divergence in pricing here could prove key for the pair, making US Michigan sentiment (Apr14), UK CPI (Apr19), US ECI/PCE data (Apr28) the key releases going forward.
- Recall – MNI hosts event today with BoE Chief Econ Pill at 1400BST – register here: https://www.eventbrite.co.uk/e/livestreamed-mni-connect-video-conference-with-boes-huw-pill-tickets-576884175097