The Cable bounced off the bottom of the trading channel and since the first few days August has appreciated 2.6% to lift futures to the upper end of the channel. As one can see futures have stalled at around the same levels that served as resistance in April/May just under $1.5600(horizontal red line). Stochastics are reading oversold and I feel scaling into bearish trade willing to risk a trade to $1.5700 with an objective at $1.5000 makes sense. The Pound should exhibit an inverse relationship to the US dollar which has depreciated 1.7% in the last 6 days and is lower by 4.5% in the last month of trading. My take is the greenback is very close to an inflection point and though I am not a dollar bull I do think we are due for a dead cat bounce.
On the docket in terms of potential market moving event next week across the pond:
- Tuesday 8/13 GBP CPI for July expectation 2.9%
- Tuesday 8/13 GBP Core CPI for July expectation 2.3%
- Wednesday 8/14 BoE minutes are released
- Wednesday 8/14 GBP Claimant Count Change for July expectation -21.2k
Now for the trade…
- Shorting September futures and selling an at the money put 1:1 or conversely buying an at the money call 1:1 as a way to manage the trade without a stop. As of the post the $155 calls – currently $750/$800 and a 51 delta, the $155 puts – currently $700/750 and a 49 delta. There is 29 days until expiration on the options so the duration for the trade should be 1-2 weeks in my opinion.
- Back ratio spreads with a kicker. Sell (1) $155 put – currently $725/775 and a 50 delta, buy (2) $154 puts – currently $475/525 and a 37 delta and buy (1) $152 – currently $175/225 and an 18 delta. All in the cost should be approximately $500 plus fees and you should have a positive delta of 42. You are looking for a volatile move lower in the coming weeks. When doing this transaction understand there are multiple legs so the transaction costs increase. Factor that into your decision when deciding on this trade.
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