FxWirePro: FX OTC market indicates meticulous eyes of short-term sterling traders on BoE governor’s speech, bearish hedging sentiments remain intact

Sterling kept out of bullish sentiments as the GBPJPY and GBPUSD resumes price slumps again from the week's high.

Short-term traders have to be little meticulous for today's speech from the BoE's Carney, Financial Stability Report could deliver a hawkish tone. While the bets are on for the next Bank of England Governor. The 1st female Governor of the BoE is on the cards. Russell Lynch sizes up the CVs of the contenders.

Fundamentally, as we continue to foresee the trade apprehensions rachet up, the British pound likely to prolong bearish streaks amid minor spikes against the Japanese yen in a typical “risk off” move. We’ve listed out a few factors that likely to drive GBPJPY bearish scenarios.

Bearish GBPUSD, GBPJPY scenarios:

1) BoE rate hikes are delayed until much later in 2018 as core CPI continues to moderate and wages remain sticky below 3%;

2) The UK and EU fail to agree on the Irish border, leading to a non-negotiated Brexit);

3) Overt balance of payments pressure.

4) Acceleration in the US inflation leads aggressive Fed hikes that in turn results in attractive UST yields but JGB’s vulnerable as BoJ tightening may be a long way off even if core inflation rate rises more than anticipated.

Bullish scenarios:

 1) A Parliamentary majority in favour of customs union membership frustrates a hard Brexit;

2) Govt. defeat on a large number of the soft-Brexit amendments to the withdrawal bill in the Commons prompts a leadership challenge to May, maybe a general election.

All these bearish driving forces seem to be factored-in OTC markets. Please be noted that the positively skewed IVs of 2m tenors signify the hedgers’ interests to bid OTM put strikes upto 141 levels (refer above nutshell evidencing IV skews). As you could observe GBPJPY forward rates across different tenors (refer above 1st and 2nd charts), these derivatives instruments indicate bearish targets of this pair.

Risk reversal of cable (GBPUSD) is also signalling mild bullish risks in short-term tenors, whereas, bearish risks remain intact in long-run (refer above nutshell showing risk reversals).

Currency Strength Index: FxWirePro's hourly GBP spot index is inching towards -23 levels (which is bearish), while hourly USD spot index was at 65 (bullish) while articulating (at 10:19 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex

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