SAMT Blog
GBPUSD Asymmetric Risk
23. November 2021, by Ron William
Technical Analysis
GBP/USD Asymmetric risk, after the Deja vu failure near 1.40-1.40 price zone. This echoed a similar bearish sentiment at the 2018 peak, after the Brexit crash lows of 1.1840 (Figure 1).
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Tactical market proxies also signal growing headwinds (Figure 2). Option market sentiment based on “Risk-reversal” is turning negative, after flat-lining for almost a year (Figure 2).
This indicator tracks the difference between call and put options, showing trader’s inclination to make bearish or bullish bets on each currency vs. USD. Against GBP, bullish USD bets are increasing, while bullish USD demand vs. EUR reached its highest since June 2020. Both risk-reversal trends naturally capture mounting USD bullishness. Watch the DXY key level at 95 for evidence of further gains.
Additionally, GBP is also being pressured by global macro dynamics. The UK runs a basic balance deficit. This means portfolio inflows, both in equities and bonds are needed to finance the trade deficit. These portfolio flows accelerated this year, but are now relapsing.
The risk is that a correction in global equity markets (MSCI ACW), as predicted by our Roadmap model, could pressure the divergent trend lower (Figure 3).
Rare price-time confluence
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