GBP/USD - Risk reversals adopt a bearish bias despite bullish outside day

GBP/USD Risk reversals turn negative, indicate rising demand for GBP puts.
Bearish sentiment in the options market contradicts yesterday's bullish price action.
Focus on the Fed.

Omkar Godbole FXStreet Contributor

The GBP/USD one-month 25-delta risk reversals turned negative yesterday for the first time since Jan. 12. The negative print indicates that implied volatility for GBP puts (bearish bets) is more than that of GBP calls (bullish bets).

The one-month 25-delta risk reversals were paid yesterday at 0.175 GBP puts, compared to 0.025 GBP call bias seen on Monday and well below 0.325 GBP call bias seen on Jan 18. The slide in risk reversals clearly indicates the sentiment in the options market has turned bearish.

More importantly, the previous day's bullish outside day candle failed to revive interest in GBP calls. That said, the Pound could still continue to rise if the Fed statement remains unchanged as opposed to the expectation that the central bank will likely upgrade its balance of risks and inflation statement.

GBP/USD Technical Levels

Having clocked at 1.4144 yesterday, the spot traded around 1.4160 levels in Asia. A break above 1.42 (psychological level) would open doors for 1.4287 (Jan. 26 high on 4-hour) and 1.4345 (recent high). On the other hand, a failure to hold above 1.4136 (Asian session low) could yield a pullback to 1.4073 (4-hour 50-MA) and 1.4007 (23.6% Fib R of Jan. 11 low - Jan. 25 high).

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bullish	Overbought	High
1H	Bearish	Neutral	Low
4H	Bullish	Neutral	Low
1D		Neutral	High
1W		Overbought	Expanding
Updated Jan 31, 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.

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