GBP/USD Analysis: Minor corrective rally on cards?

Open interest in the cheap out-of-the-money calls spiked on Friday.
Investors hedging against a potential corrective rally in GBP/USD.

Omkar Godbole FXStreet Contributor

The GBP/USD for the fourth straight day on Friday, hitting the psychological support of 1.40 for the first time since April 6.

Daily chart

The currency pair closed below the ascending trendline, confirming a short-term bullish-to-bearish trend change. The 5, 10 and 21-day moving average (MA) is biased bearish. Further, the relative strength index (RSI) has dropped below 50.00 - into bearish territory. However, a bullish RSI divergence is seen on the 1-hour chart and the 4-hour RSI shows oversold conditions.

Meanwhile, the option market details published by the CME show a big jump in the open interest (OI) or open positions in the cheap out-of-the-money (OTM) GBP calls (buy GBP).

GBP/USD GBUK8 Open Interest Change: Current (Apr 20 - Prelim) vs Apr 19

CALL SUMMARY
TOTAL		ITM		OTM
OI	CHG	OI	CHG	OI	CHG
22,605	1,069	3,446	-2	19,159	1,071

PUT SUMMARY
TOTAL		ITM		OTM
OI	CHG	OI	CHG	OI	CHG
23,401	-497	4,551	-30	18,850	-467

The open interest in the OTM calls jumped by 1,071 contracts on Friday. Meanwhile, the open interest in the put options (sell GBP) fell by 497 contracts.

Clearly, the investors are positioned for a minor corrective rally in the GBP/USD pair. The options data adds credence to the bullish price-RSI divergence on the 1-hour chart and the oversold conditions shown by the 4-hour RSI.

The immediate upside will likely be capped around 1.41, while on the downside, acceptance below 1.3965 (April 5 low) could prove costly for the GBP bulls.

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates

Unimpressive European Central Bank left monetary policy unchanged for the fifth consecutive meeting. The United States first-tier employment and inflation data is scheduled for the second week of February. EUR/USD battles to remain afloat above 1.1800, sellers moving to the sidelines.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold: Volatility persists in commodity space

After losing more than 8% to end the previous week, Gold remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000. The US economic calendar will feature Nonfarm Payrolls and Consumer Price Index data for January, which could influence the market pricing of the Federal Reserve’s policy outlook and impact Gold’s performance.

Week ahead: US NFP and CPI data to shake Fed cut bets, Japan election looms

US NFP and CPI data awaited after Warsh’s nomination as Fed chief. Yen traders lock gaze on Sunday’s snap election. UK and Eurozone Q4 GDP data also on the agenda. China CPI and PPI could reveal more weakness in domestic demand.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.