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FxWirePro: Sterling on verge of new lows - GBP bears add-up fresh hedging bids on cancellation of parliamentary vote for EU-UK divorce

Sterling has been the underperformer among G10 FX space, thanks to the chaotic Brexit process to date. The Q1 outlook for the cross is binary: either a friendly Brexit or not. 

While the UK government has cancelled a parliamentary vote on the divorce settlement. UK Prime Minister May is to go to Brussels to renegotiate. One of the many EU presidents (Tusk this time) has said the EU will not renegotiate but it will help get ratification which sounds a bit like a soft renegotiation.

OTC hedging updates: Please be noted that the positively skewed IVs of GBPJPY of 2m tenors signify the hedgers’ interests to bid OTM put strikes upto 134 levels (refer above nutshells evidencing IV skews). 

As both interpretations make sense they are balancing the spot market and GBP spot levels are reacting hardy at all. Only volatility is increasing. 

It remains more expensive to hedge against strong GBP depreciation, which means that an orderly Brexit in whatever shape is still seen as being more likely. However, the risk of things going wrong is high and as a result, we regard any GBP appreciation with much scepticism. 

Although you are seeing risk reversals showing fresh positive bids to the existing bearish setup, while the positively skewed GBPUSD implied volatilities of 2m tenors still signal bearish hedging sentiments. To substantiate this downside risk sentiment, risk reversals have also been in negative territory adding minor negative bids in the short-run. We see less volatile swings in GBPUSD, if you plot weekly technical chart. 

Currency Strength Index: FxWirePro's hourly GBP spot index is showing -24 (which is mildly bearish), while USD is flashing at -4 (which is neutral), while articulating at (09:40 GMT).

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

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