FxWirePro: 2m GBP/JPY IV skews in line with Q1 projections and bearish scenarios

Bearish GBPJPY Scenarios, see slumps up to 138 levels if: 

1) A no-deal Brexit (GBP down between 10-20%). 

2) PM May resigns and is replaced by a harder-Brexiteer following the defeat of a Brexit motion in parliament, opening way to #1.

3) The US starts vehemently criticizing Japan’s trade surplus against the US.

Bullish GBPJPY Scenarios, see rallies up to 147 levels if:

1) The Withdrawal Agreement is eventually approved (GBP +3-5%). 

2) Article 50 deadline is extended (GBP+2-3%). 

3) A second referendum (GBP +5%). 

4) Article 50 is revoked, unilaterally by parliament or following a second referendum (GBP up 10%+).

On a broader perspective, the major downtrend of GBPJPY that went in the consolidation phase has now resumed bearish streaks again (refer monthly plotting) to retrace 78.6% Fibonacci levels (i.e. 131.415 levels by Q1 end), the current price trend has nudged below 7 & 21-EMAs.

OTC Outlook and Hedging Strategy: Please be noted that IVs of GBPJPY display the highest number among entire G10 FX universe (trending between 14.07% - 11.72%). Hence, vega long put is most likely to perform decently capitalizing on the rising mode of IVs.

While the positively skewed IVs of 2m tenors signify the hedgers’ interests to bid OTM put strikes up to 138 levels which is in line with technical targets and bearish scenarios (refer above nutshells evidencing IV skews). Courtesy: Sentrix & JPM

Currency Strength Index: FxWirePro's hourly GBP spot index is flashing -79 (which is bearish), while hourly JPY spot index was at 123 (bullish) while articulating (at 08:21 GMT).

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex