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23 Apr 2015
Trading GBP/USD into election uncertainty – BAML
FXStreet (Barcelona) - The price action comparison from 2010 vs 2015 remains in favour of shorting GBP/USD into the election uncertainty, notes Kamal Sharma, FX Strategist at BofA-Merrill Lynch.
Key Quotes
“This rise in volatility since the start of 2015 is probably reflective of two factors: a structurally higher volatility environment as a result of central bank policy surprises/divergence, and the fact that that the strong possibility of a hung parliament had been flagged by the opinion polls for many months.”
“As a result of this earlier move higher in volatility relative to 2010, we closed out of our 2-mth cable straddle in mid-March as 2mth volatility traded meaningfully higher in the first two weeks of that month. The extent to which 1mth volatility started to push lower 10-days after the 2010 election is likely to be challenged this time around particularly if negotiations around the formation of a new government (and therefore the risk of a second election) are protracted.”
“The price action comparisons for GBP/USD spot in 2010 vs 2015 look a lot more encouraging for our current trading strategy to be short GBP/USD via a 1mth ratio put spread.”
Key Quotes
“This rise in volatility since the start of 2015 is probably reflective of two factors: a structurally higher volatility environment as a result of central bank policy surprises/divergence, and the fact that that the strong possibility of a hung parliament had been flagged by the opinion polls for many months.”
“As a result of this earlier move higher in volatility relative to 2010, we closed out of our 2-mth cable straddle in mid-March as 2mth volatility traded meaningfully higher in the first two weeks of that month. The extent to which 1mth volatility started to push lower 10-days after the 2010 election is likely to be challenged this time around particularly if negotiations around the formation of a new government (and therefore the risk of a second election) are protracted.”
“The price action comparisons for GBP/USD spot in 2010 vs 2015 look a lot more encouraging for our current trading strategy to be short GBP/USD via a 1mth ratio put spread.”