GBPUSD’s risk reversal levels for 1 week and 1 month is falling since early November while GBPUSD is up %1,88 since 12th of November. What is happening in the options market? Why is the price of the currency and options pricing going different ways?
RR’s are near September levels when GBPUSD is at 1.2834. There can be two reasons for this divergence:
- Beware! Brexit is Coming: EU and UK leadership had set up deadlines over deadlines for Brexit negotiations but never actually followed them. But now the actual Brexit deadline is at the door. Diplomats have limited time until this year’s end. There were some good news about compromises but it is still unclear a final deal can be reached. This is a big downside risk for GBPUSD and investors with long positions and businesses which can be affected negatively by this bad outcome may be hedging themselves in the options market.
- Beware the 1.3350-1.35 Resistance Zone:
Since May 2018, GBPUSD could not pass the 1.3350-1.35 zone to the upside. There were 7 major tries but all of them failed and the price reverse to the downside with an average of nearly 7 percent. It is highly possible that speculators positions themselves for another big fall from this zone.
Shorter-Term Key Technical Levels
The 13-day moving average may be a good support level for a weak signal and for a downside turn. Below this average, a move to 1.2980 can happen.
For upward moves, 1.35 will be key. If the price break and hold over that level, the medium-term bull may come to markets.
Medium to Long Term Key Technical Levels
Over 1.35 moves may at first target 1.3765 resistance. The second and longer-term target for GBPUSD may be the top of 2017-2018 which is at 1.4345. Of course for this to happen some good news may be needed for strong GBP and weaker USD.
For the downside, below the 1.2980 trend, 1.25 can be a good target which is also nearly %7 percent down from current levels.