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Most Volatile Currencies Next Week - GBP/USD, AUD/USD

Most Volatile Currencies Next Week - GBP/USD, AUD/USD

Justin McQueen, Strategist

Currency Volatility GBP/USD, AUD/USD Talking Points

  • Boris Johnson Calls for Snap Election
  • G7 FX Volatility Rises Amid Plethora of Key Data Releases

Top 10 most volatile currency pairs and how to trade them

Most Volatile Currencies Next Week - GBP/USD, AUD/USDG7 FX Volatility

G7 FX volatility picks up amid a plethora of key US data, including NFP, ISM and US Q3 GDP figures for market participants to digest, while central bank decisions from the Federal Reserve, Bank of Canada and Bank of Japan will also dictate risk sentiment. (DailyFX Calendar)

GBP/USD | Weekly Range 1.2660-1.3000

GBP/USD 1 Week ATM break-even straddles = 188pips/11.55vols(meaning that for option traders to realise gains, the spot price must see a move greater than 188pips).

The past week has seen Sterling implied volatility in freefall across all tenors after UK PM Johnson pulled his Brexit deal following parliaments rejection of the programme motion. As such, with the UK likely to remain in the EU post the Halloween Brexit date, 1-week implied vols are at the lowest level since October 10th. However, political uncertainty is in abundance and with Boris Johnson looking to call an election for December, if there is one certainty, Sterling volatility will be back on the rise. Alongside this, the investor angst pertaining to an election could see GBP/USD continue to pullback towards 1.27. Downside protection in GBP/USD has been evident in risk reversals, which highlight a small premium for GBP puts over calls.

AUD/USD | Weekly Range 0.6760 – 0.6900

AUD/USD 1 Week ATM break-even straddles = 60pips/7.35vols

As the lift in risk sentiment eases, high beta currencies have pulled back, in particular the Australian Dollar, which stopped short of making a test of the 0.6900 handle. In the week ahead, the CPI report for Q3 will be among the key focal points for the Australian Dollar, whereby expectations are for a small lift. Keep in mind, that money markets are only attaching a 15% likelihood of another rate cut by the RBA at the November 5th meeting, thus a higher than expected CPI reading is unlikely to shift the Aussie notably higher. Aside from local data, the currency will take its cue from risk appetite with much of that likely to be dictated by tier 1 US data as well as the Fed rate decision.

For a more in-depth analysis on FX, check out the FX Forecast

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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

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