GBP/USD - Neutral bias in options market ahead of UK Mfg. PMI

GBP/USD Risk reversals and Vols drop, suggest neutral bias.
UK Jan Mfg. PMI due at 09:30 GMT.

Omkar Godbole FXStreet Contributor

GBP/USD ran into bids at 1.3980 on Tuesday and jumped to 1.4233 yesterday, adding credence to Tuesday's bullish outside day candle and indicating scope for a break above the recent high of 1.4345.

However, the options market has turned neutral, signaling range bound action ahead/neutral bias. The GBP/USD one-month 25 delta risk reversals are paid at -0.2 GBP puts. Just a week ago, FX dealers were demanding a record high volatility premium for GBP calls (+0.4), but have since returned to a neutral to negative bias (negative risk reversals indicate puts are in demand).

Also, the one-month at the money (ATM) option volatility gauge hit a one-week low of 8.75 today, i.e. dealers are selling GBP vols, meaning the market does not expect big moves in the GBP in the short-run.

That said, a better-than-expected UK Jan manufacturing PMI could lift GBP/USD. However, only a convincing move above the recent high of 1.4345 could revive demand for GBP calls and push up vols. On the other hand, a big miss on the data could set the GBP/USD on track towards Tuesday's low of 1.3980. A violation there could strengthen the demand for GBP puts.

GBP/USD Technical Levels

The spot traded just below 1.42 levels in Asia. A close below 1.4145 (1-hour 100-MA + 1-hour 50-MA) would open up downside towards 1.41 (1-hour 200-MA) and 1.4083 (Jan. 25 low). On the other hand, a move above 1.4233 (resistance on the 1-hour chart) could yield 1.4287 (Jan. 26 high). A violation there would expose the recent high of 1.4345 (recent high).

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bearish	Neutral	Expanding
1H	Bullish	Neutral	Low
4H	Bullish	Neutral	Expanding
1D	Bullish	Overbought	High
1W		Overbought	Expanding
Updated Feb 1, 03:15 GMT

Author

Omkar Godbole

FXStreet Contributor

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

AUD/USD bulls regain control above 0.6950 amid USD retreat

AUD/USD regains traction and extends the previous day's bounce from the weekly low, aiming for 0.7000 in Asia on Friday. The overnight pullback in US bond yields keeps the US Dollar below an 18-month high, which in turn offers some support to the pair. Meanwhile, hawkish RBA expectations also keep the major underpinned.

USD/JPY holds gains near 158.00 after Japan's weak Household Spending data

USD/JPY clings to gains around 158.00 after data showed on Friday that Japan's Household Spending fell for the ninth straight month, undermining the Japanese Yen. Meanwhile, the US Dollar remains depressed as the overnight fall in US bond yields counters a hawkish Fed and geopolitical uncertainties, could cap any downside in the pair.

Gold remains range-bound below $4,200

Gold has given up some ground after an initial bullish attempt to reach weekly highs, returning to below the $4,200 mark per troy ounce on Friday. The US Dollar’s strong upside momentum, combined with rising US Treasury yields across the curve, seems to keep further gains in the yellow metal under scrutiny.

Has Bitcoin really escaped the macro forces it was built to fight?

Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?

The Euro is not the sick man of Europe. France's bond market is

EUR/USD remains under pressure, near the 17-month low of 1.1161 reached on Monday. The pair has lost more than 7% since its yearly peak, as concerns over France's public finances increasingly weigh on the single currency. But behind the weakness of the Euro (EUR), the problem does not necessarily lie with the European economy as a whole.