GBP/USD - Risk reversals adopt a bearish bias despite bullish outside day

GBP/USD Risk reversals turn negative, indicate rising demand for GBP puts.
Bearish sentiment in the options market contradicts yesterday's bullish price action.
Focus on the Fed.

The GBP/USD one-month 25-delta risk reversals turned negative yesterday for the first time since Jan. 12. The negative print indicates that implied volatility for GBP puts (bearish bets) is more than that of GBP calls (bullish bets).

The one-month 25-delta risk reversals were paid yesterday at 0.175 GBP puts, compared to 0.025 GBP call bias seen on Monday and well below 0.325 GBP call bias seen on Jan 18. The slide in risk reversals clearly indicates the sentiment in the options market has turned bearish.

More importantly, the previous day's bullish outside day candle failed to revive interest in GBP calls. That said, the Pound could still continue to rise if the Fed statement remains unchanged as opposed to the expectation that the central bank will likely upgrade its balance of risks and inflation statement.

GBP/USD Technical Levels

Having clocked at 1.4144 yesterday, the spot traded around 1.4160 levels in Asia. A break above 1.42 (psychological level) would open doors for 1.4287 (Jan. 26 high on 4-hour) and 1.4345 (recent high). On the other hand, a failure to hold above 1.4136 (Asian session low) could yield a pullback to 1.4073 (4-hour 50-MA) and 1.4007 (23.6% Fib R of Jan. 11 low - Jan. 25 high).

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bullish	Overbought	High
1H	Bearish	Neutral	Low
4H	Bullish	Neutral	Low
1D		Neutral	High
1W		Overbought	Expanding
Updated Jan 31, 03:15 GMT

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.