Please be noted that the 2m implied volatilities of GBPJPY are spiking above 10.60% ahead of above-mentioned data events, while positively skewed IVs signifies the hedging interests in OTM put strikes.

In spite of GBPJPY downtrend seems to be intact, a lot of bad news is already priced in and digested by the market. Brexit caused two Sterling debacles, first in June with the vote and then after the summer when PM May suggested a hard exit.

GBPJPY lost over 3-4% over this quarter with one fortnight to spare and it doesn’t seem the dust has settled. In the process, volatility fell but remained relatively high on a historical basis.

Assuming a medium-term range in this pair and that negative surprises are no longer market tail risks, the GBP volatility is still a short.

Even if the aggressive volatility investors want to capture GBP should consider buying ATM put instruments and/or being long of the smile convexity, against ATM volatility.

But further GBPJPY weakness and/or abrupt upswings suggests building a directional and volatility patterns at the same time: the value of OTM puts would likely to rise significantly as the IVs seem to be favoring these distant strikes. We, therefore, recommend buying a 1m2m IV skews and risk reversal with ATM options.

GBP is the second worst-performing currency over the past two weeks as evidence cumulates of a broad-based loss in economic momentum(the TWI has lost 3%to 1% below the6m average).