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Chart of the day: Upside potential in British pound

PUBLISHED : Monday, 29 January, 2018, 8:04am
UPDATED : Monday, 29 January, 2018, 8:03am

For the first time in more than a decade, the implied volatility on a one-month, 10-delta, at-the-money call on the British pound against the US dollar is higher than the cost of buying a cable put, standing at 10.2 per cent. This is despite the ongoing discussions surrounding Brexit. The move underlines just how wrong so many were and how many bets against the pound have begun to be unwound. Last week, the pound matched the opening price on the day the referendum results were announced in June 2016 – at US$1.435. Last week’s gain of 5 US cents is among the biggest of the secular rally that began in earnest in January 2017. On a historical basis, the pound is still cheap, so we will pencil in US$1.50.

Nicole Elliott is a technical analyst

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