Currency Volatility: GBP and EUR Traders Expect Heightened Price Action

FOREX MARKET IMPLIED VOLATILITY – TALKING POINTS

• GBPUSD and EURUSD overnight implied volatility jumps ahead of the latest Brexit developments and update on Eurozone’s economy
• UK employment data and ZEW’s latest Survey of Economic Sentiment expected tomorrow are likely contributing to GBP and EUR uncertainty
• Looking for more information on forex volatility? Check out this article on the Top 10 Most Volatile Currency Pairs and How to Trade Them

Although implied volatility across the currency market generally looks depressed relative to levels witnessed over the last few trading days, GBPUSD and EURUSD overnight options contracts are pricing in heightened price action for tomorrow. In fact, compared to Friday’s numbers, GBPUSD 1-Day implied volatility skyrocketed from 8.30 percent to 14.50 percent while EURUSD 1-Day implied volatility rose from 2.96 percent to 5.53 percent.

CURRENCY IMPLIED VOLATILITIES AND TRADING RANGES

Aside from employment data expected out of the UK tomorrow, the latest Brexit development has injected additional uncertainty regarding the country’s departure from the European Union. It now looks like MPs will no longer hold a third meaningful vote on the proposed EU Withdrawal Agreement this week, dealing the most recent blow to PM May and her Brexit deal. As Speaker Bercow stated this morning, the British government cannot hold another vote on the same proposition.

Although the House of Commons just approved a Brexit extension last week in hopes of delaying the March 29 deadline, pushing back the date requires unanimous approval from all other 27 members of the EU. Greater uncertainty as we approach the Brexit finish line is likely bidding up GBPUSD option premium hedging costs which is reflected in the higher implied volatility.

FOREX ECONOMIC CALENDAR

The Euro will likely garner some attention from currency traders with the latest reading on economic sentiment expected to be released at 10:00 GMT tomorrow. If the report is perceived by markets as positive, EURUSD may continue its recovery back to the upside. Alternatively, further deterioration of economic sentiment in the Eurozone could put renewed pressure on the bloc’s currency.

Elsewhere in forex markets, overnight volatility on the New Zealand Dollar, Australian Dollar and Japanese Yen nearly doubled from Friday. The uptick could be in response to NZD, AUD, and JPY having potential for sizable price swings ahead of tomorrow’s market-moving event risk.

GBPUSD CURRENCY TRADER SENTIMENT

GBPUSD client positioning data from IG shows that 50.4 percent of traders are net-long with the ratio of traders long to short at 1.02 to 1. The number of traders net-long is 0.8% higher than Friday while the number of traders net-short is 10.7% lower than Friday. Take a look at this free educational guide on how to analyze sentiment indicators and incorporate them into your trading strategy.

Visit our Education Center for more information on Free Trading Guides and Forecasts.

EURUSD CURRENCY TRADER SENTIMENT

IG client positioning data for spot EURUSD indicates that 46.5 percent of traders are net-long with the ratio of traders short to long at -1.15 to 1. The number of traders net-long is 3.9 percent higher than Friday while the number of traders net-short is 11.7 percent higher than Friday.

Check out IG’s Client Sentiment here for more detail on the bullish and bearish biases of EURUSD, GBPUSD, USDJPY, Gold, Bitcoin and S&P500.

- Written by Rich Dvorak, Junior Analyst for DailyFX

- Follow @RichDvorakFX on Twitter