Soften GBP volatility curve as UK polls nearing

Strategy: Neutral to Bullish

Political pressure on the eve of UK elections has to be halt aside from currency risks. It may hurt British pounds against other major currency counterparts. However, other fundamentals are robust; they suggest that the traders can have nothing to bother on this. A good domestic employment numbers, as headline CPI numbers are out at 0% which is way below the Bank of England's estimates of 2%. So it is clearly evident that there is no room for any rate cut or raise measures by imperial bank of England.

In addition to everything, it has been observed that over series of trading sessions there is a sharp accumulation of volumes of long on GBP. This helps understanding the sentiment towards this soft currency is still intact. More importantly, while considering the performance of economic data of the US and their key interest rates estimates have been relatively better than the UK.

But in this tug of currency war for those who are highly risk averse, visualizing pounds sterling may get adversely affected by the outcome of this election we are advocating some trade ideas for hedging purpose only in order to safe guard their GBP exposure against USD.

Our technical view in any medium term does not evidence the harm. Both on weekly as well as monthly charts do not indicate any downswings, RSI trading at around 55 levels which is in convergence with weekly and monthly curves. It is also fortified with the cross over happened on fast stochastic at 30 levels.

But as the uncertain outcomes are on the cards (i.e. UK polls scheduled to be on 7th May), it is advisable to go for a synthetic option strategy:Buy a middle month In-the-money put option simultaneously with near month at the money call options.This synthetic position gives the holder of the option to smoothen any steep unanticipated downward move in GBP vs USD and lock in probable spike on the upward as per our projection considering strong fundamentals of pounds sterling.