###POV: STERLING OPTIONS GEARING FOR.......>

STERLING: ###POV: STERLING OPTIONS GEARING FOR FURTHER GAINS, UPSIDE PROTECTION

DEMAND TOUCHES HIGHEST SINCE 2007

-GBP/USD 3m risk reversals have risen to their highest levels for over a decade,

indicating that markets see little risk of a sharp fall in GBP anytime soon. The

same trend is observed in EUR/GBP 3m risk reversals (in favour of GBP upside

protection), albeit to less extreme levels.

-This has resulted in the relative cheapness of OTM calls being almost entirely

erased over the past eighteen months or so and could signal the beginning of a

new longer-term trend in GBPUSD options in favour of calls over puts. As such,

the GBP/USD volatility SMILE curve now appears broadly symmetrical for the 1st

time since the financial crisis (as opposed to skew towards OTM puts).

-A number of desks also highlighting net positioning figures; CFTC data shows

leveraged funds have net sterling longs at their highest level since mid-2015,

while asset managers have tapered their net short position in GBP for 10

consecutive weeks.

-MNI FX PI shows GBP positioning indicator still just shy of Aug-2017 highs.