Sterling has benefitted recently to receding fears of a Brexit at the June referendum. Price has rallied from 1.3835 on February 29th to a peak at 1.4638 last Tuesday. However, a new medium term bull trend can only be considered as confirmed once price goes past its most recent high of 1.4667set on February 4th. All it took to cool down the rally in this pair was some news of the Leave voters outnumbering the Remain voters in a Poll by ICM. The poll put leave voters in front by a few percentage points on Tuesday and in fact, by Wednesday morning GBPUSD had reversed back down to levels below 1.4600.
It is true that markets do not like uncertainty; when the future is cloudy investors will preemptively unload securities or assets that are not showing a clear picture. The GBPUSD is certainly going through an uncertain moment, although the debate is still very open as to whether a Brexit would benefit the UK or not. Economists of all walks and from the most notorious investment institutions and academia are extremely divided as to what the consequences would be for the UK if the country did choose to leave the EU.
The division in viewpoints has only increased the doubt surrounding how a possible Brexit might playout. With this in mind, it is easy to see how any news or headlines that indicate an outcome as more likely for the Remain or Leave camp can send the price of GBPUSD up or down.
Economic data will continue to play a role in price trends; yesterday there was the monthly release of GDP data for the UK. The figure was as expected at 0.4%, but as it was a reduction from last month’s figure at 0.6%, it didn’t help Sterling’s cause very much at all.To compensate, the Federal Reserve Bank announced it would leave interest rates unchanged yesterday, and gave no further clues as to how soon they actually would increase interest rates again.
If you think GBPUSD will continue its bull trend over the next week then you may buy a Call option, which gives you the right to buy GBPUSD at a preset price (strike), on a specific date (expiry) and for an amount of your choice.
The screenshot below shows a GBPUSD Call option with a 1.45449 strike, 7 day expiry and for £10,000 would cost $80.03, which would also be the maximum risk.
This screenshot shows the profit and loss profile of the above Call option, just click the Scenarios button.
On the other hand if you feel GBPUSD will revert course and begin to fall over the next week then you may buy a Put option, which gives you the right to sell GBPUSD at a specific strike on a specific expiry and for an amount of your choice.
The screenshot below shows a GBPUSD Put option with a 1.45384 strike, 7 day expiry and for £10,000 would cost $79.43, which would also be the maximum risk.
This screenshot shows the profit and loss profile of the above Put option.
The content provided is made available to you by ORE Tech Ltd for educational purposes only, and does not constitute any recommendation and/or proposal regarding the performance and/or avoidance of any transaction (whether financial or not), and does not provide or intend to provide any basis of assumption and/or reliance to any such transaction.
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