Sterling rallied again yesterday after the London open on continued momentum from last week’s gains against a weakened US dollar. Price hit a 13 session high at 1.2435 before retreating on the news that PM May would be triggering Article 50 on March 29th, officially starting Brexit negotiations.
The Pound has constantly suffered when the possibility of a hard Brexit is vented, more news to that effect help price fall further. Various EU officials have mentioned at various times that the UK must be worse off after leaving the EU. Today it was EU commissioner again throwing threats, he stated that the UK must be made an example, so as to dissuade the departure of other countries.
The US dollar suffered from expectations of a more hawkish statement after last week’s FOMC monetary policy meeting. The statement was read as prudent, and the adjective “gradually” was used in describing the rate of interest rate hikes. The market had been hoping for wording that might be indicating 4 total hikes for 2017. As it was released the market widely interpreted that 3 looks a more likely number.
While the BoE meeting last week showed one member voted to hike rates, indicating a possible shift in monetary policy from the Bank if inflation continues to rise. We may get an indication of inflationary pressure this Thursday with the release of Retail Sales at 09:30 am.
If you think Cable will rise after the data release then all you need to do is buy a Call option, which gives you the right to buy GBPUSD at a pre-set price (strike), for a set date (expiry) and for an amount of your choice.
The screenshot below shows a GBPUSD Call option with a 1.23582 strike, 7-day expiry and for £10,000 would cost $65.38, 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 that GBPUSD will continue to decline after the data then all you need to do is buy a Put option, which gives you the right to sell Sterling against the US dollar for a set strike, expiry and amount of your choice.
The screenshot below shows a GBPUSD Put option with a 1.23574 strike, 7-day expiry and for £10,000 would cost $57.25, which would also be the maximum risk.
This screenshot shows the profit and loss profile of the above Put option.
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