Technically, we kept urging for GBPAUD's weakness ever since the formation of gravestone doji and hanging man patterns in last September and November, now almost within 1-months time frame, it has shown declines of 0.37% (from 1.8706 to the current 1.8636 levels). It is now on the verge of reaching 1.8372 levels (i.e. 50% Fibonacci levels). Short term bears can consider 7DMA as resistance so as to make it the time to enter trades for shorts.

1D ATM IVs of this pair are at around 14.55% and 11.19% for 1W expiries. So, in short term it is likely to reduce volatilites in OTC FX markets which is a good news for those who have shorts positions.

Please also be noted that OTM put strikes flash higher probabilistic numbers with healthy deltas.

Currency hedging strategy: GBPAUD

With the technical indications and OTC outlook, during such circumstances we could foresee the option writers would be on the upper hand.

Hence, we recommend arresting further downside risks of this pair in long term by hedging through Put Ratio back Spread instead of any other bearish hedging vehicles which involves extra cost.

So, purchase 2M 2 lots of At-The-Money -0.4p delta puts (arrest Brexit issues) and short 1w 1 lot of (1%) In-The-Money put option with positive thetas.

The short ITM puts funds to the purchase of the greater number of long puts and the position is entered for no cost or a net credit but the risk associated with this strategy is that there is a chance of exercising ITM shorts.

The underlying exchange rate has to make substantial move on the downside for the gains in long puts to overcome the losses in the short puts as the maximum loss is at the long strike.