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GBP/USD – Failed Bounce May Drive Short-term Volatility Higher

GBP/USD – Failed Bounce May Drive Short-term Volatility Higher

Paul Robinson,

What’s inside:

  • GBPUSD one-week implied volatility at 7.82%, may prove underpriced with further weakness
  • A firm breakdown below the August high opens path up for losses towards 13000
  • Bounce higher should prove difficult with 13400-area looming, projected one-week high unlikely to be exceeded

Find out in our Q4 Forecast what is expected to drive GBPUSD through year-end.

In the following table, you’ll find implied volatility (IV) levels for major USD-pairs looking out over the next one-day and one-week time-frames. Using these levels, we’ve derived the 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 failed bounce could lead to a sell-off towards 13000, and if achieved short-term implied volatility likely to go higher…

Since putting in a sharp reversal-bar at a confluence of resistance by way of the 2014 trend-line (passes over the ‘Brexit’ day high) and gap-fill the following Monday after the vote, GBPUSD has been quite weak. Since touching off on support around the August high yesterday, cable is trying to muster some strength here. Looking higher, there is resistance in the vicinity of 13400/500. Looking at implied volatility, the projected one-week high (within 1-stdev of current spot price) is at 13423, and given the resistance zone it appears unlikely we will see a strong push through the implied threshold.

Where we could see implied volatility prove to be underpriced, is if the August high fails to keep a bid in GBPUSD. The one-week projected low is at 13135, below key support. Seeing this exceeded would be no surprise given there isn’t any truly meaningful support until towards the lower parallel running back to April and trend-line off the March low.

Heads up: On Friday, the U.S. jobs report is due out at 12:30 GMT time. The consensus among analysts is for a Non-farm payrolls figure of +80k. For estimates on all related releases, please visit the economic calendar. Join my colleague, Christopher Vecchio, at 12:15 GMT for live coverage and analysis of the announcement.

For other currency volatility-related articles please visit the Binaries page.


GBPUSD Daily Chart

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---Written by Paul Robinson, Market Analyst

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