Cable has had a good run over the past 2 weeks going from its most recent low at 1.38351 on 29 February to top out at 1.44361 last Friday. This week has seen the Pound stumble again as price has now fallen back down, trading below 1.4150.
This week should prove to be a busy week for this currency pair with various important events lined up. Wednesday afternoon at 12:30 GMT will see Consumer Price Index data released, last month’s number showed an increase of 1.4%, and forecasts for this number are for a smaller increase of 0.9%. Inflationary pressure is one of the metrics stated by the Federal Reserve in their decision making on monetary policy.
Tomorrow evening at 18:00 GMT is the week’s main event; we have the scheduled Federal Reserve Open Market Committee (FOMC) meeting. A decision will be taken as to whether interest rates will be raised or maintained at current levels. Given the most recent stock market turmoil and slightly weaker jobs growth data the market consensus is for interest rates to be left unchanged. What will be interesting to hear is the press conference at 18:30 GMT which might give clues as to how fast subsequent interest rate hikes may take place. There might be plenty of volatility on the back of any statements seen as being hawkish or dovish.
Thursday at noon there is a scheduled meeting for the Board of Directors at the Bank of England. This is a monetary policy meeting and a decision will be taken as to the direction of interest rates. There had been talks in the past of interest rates being increased in the UK as the economy seemed to be expanding rapidly enough to warrant higher interest rates to protect against higher inflation.
The consensus on that possibility has changed recently after a spout of poorer than expected economic data. At the last meeting all 9 members of the board voted to keep interest rates unchanged, and market consensus is for a repetition at this meeting also.
If you think volatility will rise over the next week for GBPUSD then you may consider buying a Straddle strategy. The strategy consists of simultaneously buying a Call and a Put option with the same strike, expiry and amounts.
The screenshot below shows a GBPUSD Buy Straddle example with 1.41581 strike, expiry 7 days and for £10,000 would cost $189.62, which would also be the maximum risk.
This screenshot shows the profit and loss profile for the above option strategy, just click the Scenarios button.
On the other hand, if you think volatility will decrease over the next week then you may consider selling a Straddle strategy. The strategy consists of simultaneously selling a Call and a Put option with the same strike, expiry and amounts.
The screenshot below shows a GBPUSD Sell Straddle example with 1.41675 strike, 7 day expiry would create a revenue of $166.41, with a total risk of $449.77
This screenshot shows the profit and loss profile of the above option.