GBPUSD Options Point to Quiet Week, but Watch for Continued Weakness

What’s inside:

• GBPUSD had a fake-out breakout leading to a breakdown following key events
• Path of least resistance is lower, with support around 12930 eyed as next target
• One-week implied volatility drops below 7%, suggests muted movement; projected low aligns with support

Looking for a longer-term view on GBPUSD? Check out our Q3 Forecast.

In the following table, we listed levels of implied volatility (IV) for major USD-pairs looking out over one-day and one-week time-frames. Using implied volatility, we calculated the projected range-low & high prices from the current spot price within one-standard deviation for specified periods. (Statistically speaking, there is a 68% probability that price will remain within the lower and upper-bounds.)

GBPUSD one-week implied volatility declines, pattern failure points to further weakness into support

Last week, GBPUSD was heading higher out of an ascending wedge formation prior to the BoE on Thursday, but following the meeting it was hit with aggressive selling pressure. Friday’s upbeat U.S. jobs report sent the US dollar rallying versus all major currencies. This pushed cable down below the bottom-side of the ascending wedge formation, which when looked at in total accounted for a week where we saw a fake-out breakout to the top-side and then a failure through the bottom of the formation. This sequence tends to lead to further selling over the short-term if not longer.

With that in mind as a baseline scenario, we’re looking to the next spot where buyers might step in. GBPUSD has fairly substantial support near 12930. With this week holding few scheduled data releases of significance, one-week implied volatility has slipped to the lowest level among the major currencies at only 6.93%. This suggests price movement for the week will be relatively muted. The projected one-week one-standard low based on the current spot price clocks in at 12921, in close alignment with support. Even though expectations are for lower prices, selling may be cut short of anything significant once support a short distance below is met. A drop below support would quickly bring into play the March trend-line approximately another 60 pips lower.

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GBPUSD: Daily

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---Written by Paul Robinson, Market Analyst

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