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Brexit Uncertainty Leaves GBPUSD Implied Volatility At 32-Month Highs

Brexit Uncertainty Leaves GBPUSD Implied Volatility At 32-Month Highs

Rich Dvorak, Analyst


  • A potential no-deal "hard Brexit" remains 8 days away after a series of votes rejected PM Theresa May’s latest Withdrawal Agreement last week despite MPs also opposing a no-deal departure
  • Sterling traders now await the EU’s decision if the other 27 member countries will approve the UK’s request to delay Brexit to June 30
  • Check out this Brexit Timeline and read up on What Every British Pound Trader Needs to Know to sharpen your GBP knowledge and trading skills

Given the latest Brexit uncertainty, it cannot be overstated the potential volatility the Pound faces. In fact, GBPUSD currency option traders are pricing in 18.81 percent and 16.75 percent implied volatility on the 1-Day and 1-Week contracts respectively. This places the currency pair’s implied volatility at its highest level since July 2016 and comes in response to the unknown outcome regarding the UK’s departure from the EU.


Currency Market Implied Volatility

Although the Bank of England announced its latest Monetary Policy update earlier today, UK’s central bank remains sidelined by the latest Brexit drama. Yesterday the British Government formally submitted its request to the European Union to push back Brexit from March 29 to June 30 as the UK risks crashing out of the EU without a deal despite MPs voting against a no-deal exit.

Now, it appears that the direction of Brexit – and the Pound – looks to be in the hands of the EU27 who are meeting in Brussels today at the EU Summit to discuss the UK’s request to extend Brexit. Great uncertainty over the decision has fueled downside pressure in the GBP considering all other 27 EU members must unanimously approve a Brexit delay. As things currently stand, the legal default is for the UK to crash out of the EU on March 29 without a Withdrawal Agreement.


Visit the DailyFX Economic Calendar for a comprehensive list of upcoming economic events and data releases affecting the global markets.

The release of economic indicators out of the UK and US also look to move GBPUSD’s needle over the coming days. Tomorrow, currency traders are set to turn their eyes to PMI readings from the US which follows the Federal Reserve’s latest FOMC monetary policy decision. The Fed’s latest dovish position and lowering of its 2019 economic projections sent the US Dollar plummeting, but a healthy print on tomorrow’s PMI could help bolster the USD.

US and UK consumer confidence in addition to a slew of other economic data readings listed above should also be watched for any material surprises that could cause spot GBPUSD prices to oscillate. However, headlines covering the latest Brexit developments will likely overshadow economic data and dominate price action.


GBPUSD Currency Price Chart Brexit

From a technical perspective, spot GBPUSD is teetering at support from the 34-day EMA after prices fell below the 38.2 percent Fibonacci retracement line. The next technical support levels worth eyeing are the 50.0 percent Fibonacci retracement in addition to the uptrend line extending from where prices based February 14 and March 11. Slightly below this area is the 1.3051 price line derived from 1-week implied volatility and is where currency option traders expect spot GBPUSD to stay above.

On the flip side, resistance could be seen where spot cable prices fell below the 38.2 percent Fibonacci retracement line as old support becomes new resistance. Also, additional downward pressure could be applied by 20-day SMA and 8-day EMA turning lower. 1-week implied volatility expects a price ceiling at the 1.3281 spot level. It is worth mentioning again, however, that Brexit headlines will likely dictate where spot prices head from here.


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.

Client positioning data from IG indicates that 56.5 percent of traders are net-long while the number of traders net-long is 6.9 percent higher than yesterday and 7.9 percent higher than last week. This has resulted in the highest percentage of traders net-long GBPUSD since March 14 when the cable traded near 1.3256

Read More: Brexit Latest Puts UK and British Pound at EU’s Mercy

- Written by Rich Dvorak, Junior Analyst for DailyFX

- Follow @RichDvorakFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.