1. FX Outlook
  2. FX Options Weekly

Macro and Vol Commentary

GBPUSD recovered from the lows of 1.05 in recent months when the introduction of the biggest unfunded tax package took place. Since then, the leadership has changed, and a new fiscal statement was issued to support the weakening economy. With the currency pair now finding resistance at 1.20, what is next for cable?

UK economy

  • GDP performance in Q3 disappointed to the downside, with the growth falling by 0.2% q/q
    • Private consumption drove the decline, falling by -0.5% q/q
    • While the growth was above estimates, the economy should enter a technical recession in Q4 2022.
    • Indeed, in 2023 alone, the economy is predicted to contract by 1.4% and unemployment to rise by more than 500,000
  • The service industry continued to deteriorate sharply, flipping into contractionary territory at 48.8 for the first time since February 2021 in October
    • Household spending cutbacks and shrinking business investment dented new order volumes.
  • Retail sales have improved slightly in October, growing by 0.6% m/m
    • The biggest drivers behind growth were non-food and automotive sales.
    • Still, the figure was weaker than expected, and the rebound might be short-lived, underlining the continued impact of the rising inflationary pressures and interest rates on consumers.
      • Indeed, sales volume fell by 2.4% y/y in the last three months.
    • We expect consumer spending to remain under pressure going forward, given the continued pressure on households’ disposable incomes.
  • Consumer confidence in November improved following Truss’s resignation, up to -44.0, up from -47.
    • Still, business confidence continued to deteriorate sharply, falling to the lowest level in at least 13 years as economic prospects waned.
  • The labour market remains tight, although it is showing signs of weakness as demand for labour begins to wane
    • Jobless claims change increased by 3.3k in October, the highest increase since Q1 2021
    • The unemployment rate has also increased by 10bps to 3.6% and is set to peak at 4.9% in 2024
    • Average weekly earnings increased by 5.7%
      • In real terms, wage growth is not enough to keep up with inflation, and real wages fell by 2.6% at the sharpest pace since 2010
  • Inflation reading continues to beat multi-decade highs, with October reading up by 11.1%
    • A continued rise in energy costs, electricity and food drove the incline in prices
    • The one bright spot in the figures was core inflation, which remained unchanged y/y, at 6.5%
  • From the producer perspective, however, the pressures have cooled slightly, as PPI grew by 14.8% y/y in October, vs 15.9% in the previous months
    • Manufacturing PMI continued to deteriorate, falling further into the contractionary territory at 46.2
    • While cost pressures have eased the weaker pound and elevated energy prices mean that inflation remains a prime concern for manufacturers.

Mini Budget

  • In order to stabilise the public finances after the unfunded tax package by Liz Truss and shield the most vulnerable families from recession, Chancellor of Exchequer Jeremy Hunt delivered a series of tax hikes and spending cuts worth £55bn
  • The package is meant to lead to a shallower decline, lower energy bills, and higher longer-term growth.
  • The policy changes are as follows:
  1. Raising taxes for the UK’s biggest earners.
  2. Increasing the corporation tax to 25% from April
  3. A reversal of the stamp duty tax cuts to be postponed to March 2025
    1. This will make it more difficult for prospective buyers to purchase property in the coming years.
  4. Raising the windfall tax for energy suppliers from 25% to 35% and extending it to 2028, with a 45% tax placed on electricity generators.
  5. At the same time, welfare and pension payments will both increase in line with inflation.


  • BOE increased the interest rates by 75bps in October, the biggest increase since 1989
    • The current rate stands at 3.0%, also the 2008 highs
  • As a result of the new mini-budget, the markets have priced in a smaller hike for the December meeting
    • The forward swaps are now pricing in a 57bps vs 72bps at the start of the month.
  • Indeed, the BOE will struggle to raise rates as far as markets may want to curb inflationary pressures without risking the collapse of the housing market and economy overall.
  • We expect the BOE, in line with other major central banks, to slow down on the scale of tightening in December at 50bps
    • Afterwards, the 25bps might be necessary if inflation continues to remain historically high
    • As a result of the market rout caused by the unfunded tax cuts, UK mortgage rates are set to stay close to 5% for the next five years, peaking in H2 2022

Cable is not out of the woods yet, and economic weakness is set to prevail into 2023, worse than seen in the US. With both central banks set to hike by 50bps during the next month’s meeting, the comparison between the two currencies will fall to economic performance divergence. We anticipate that the sterling will lack the strength to break the 1.20 in the meantime as a result. The UK Fiscal statement had seemingly little impact on the currency on the day, as most of the fiscal prudence was priced in beforehand. While Hunt’s statement might begin the process of restoring the economy’s reputation, the impact of Truss’s unfunded tax cuts will have market ramifications in the longer term. In the meantime, we expect sterling weakness to be driven by dollar strength, which still has some more upside into the year-end.

Sources: S&P Global, Nationwide Building Society, Bank of England, UK Office for National Statistics 

Volatility Commentary

Recent USD weakness has seen GBPUSD bounce over the last few weeks with implied Vols a lot lower this month to what we have seen during SEP/ OCT. UK’s battle with inflation coupled with the recent fiscal tightening we believe probability of a deeper prolonged recession have increased and therefore believe risk to GBP are to the down side. GBP 25D risk reversal are still negative, but no longer has the worse ratio with in G10.

GBPUSD 1-month Realised and Implied Volatility

Implied And Realised (1)

GBPUSD Trade Idea

  • Idea 3 month expiries
  • Buy GBPUSD Vanilla Put Spread 1.16 & 1.11 in 5m USD notional – Pay circa 50k USD
  • Sell GBP Vanilla Call Spread with strikes 1.21 & 1.24 in 5m USD notional – Receive circa 50k USD
  • Net structure circa flat premium

Positioning Charts

USDBRL NDO Positioning Data 08/11/2022 - 15/11/2022

The options market was more subdued in the week to November 22nd, the range was widened out with the market trading between 4.50-6.20. There was very little calls trading, suggesting limited upside capacity. The market is expected to decline with options due for expiry favouring the downside, the notional value is larger, although appetite has calmed down from the week before.

Usd Brl 8 15 (2)

USDBRL NDO Positioning Data 15/11/2022 - 22/11/2022

Usd Brl 15 22 (3)

USDCNY Vanilla Positioning Data 08/11/2022 - 15/11/2022

USDCNY is showing more of a pattern in the week to November 22nd, the options market has a clearer split between calls and puts at the 7.15 level, with the number of the near-term contracts decreasing. The range for options further out into 2023 widened out to 6.70 to 7.70, with the notional size increasing after the start of new year. Put options traded indicate cover to 6.70 but in the immediate term there is more appetite on the upside. We expect USDCNY to firm slightly in the near term with the options market.

Usd Cny 8 15 (1)

USDCNY Vanilla Positioning Data 15/11/2022 - 22/11/2022

Usd Cny 15 22 (2)

GBPUSD Vanilla Positioning Data 22/09/2022 - 22/10/2022

GBPUSD trading changed in over the last month, exemplified by less call options traded in a narrower range. As we look at November options, there are more concentrated put options with larger notionals than calls which indicates that at the moment the market expects prices to fall. The majority of calls is set to expire in the near term before the start of 2023. The uncertainty in the macro-environment could prompt GBP to make gains but the options market suggests we could see spot fall.

Gbpusd Sep Oct

GBUSD Vanilla Positioning Data 22/10/2022 - 22/11/2022

Gbpusd Oct Nov

Charts and Tables

FX Expiries

Expiry (28)

Volatility Grid

Grid (54)

Historical Spot FX Volatility (30D Rolling)

Chart (21)

FX Matrix (today)

Spot (79)

Weekly Change

Week (61)

Key Events & Releases

Calendar (93)

Technical Analysis

JP Morgan Global FX Volatility 


The index has continued to weaken in recent sessions, capped by the 50 MA resistance level, as the index went below 11.50 to trade at 11.33. The stochastics are diverging on the downside, with %K/%D falling further into the oversold, and the MACD diff just converged on the downside, a strong sell signal. The 11.30 level has been tested this month, but prices rebounded, and if the index is to break below this level, it could trigger losses to 7.20. Conversely, the resistance levels at 50 and 100 MA at 11.44 and 11.61, respectively, are robust, and if these levels are broken, we could see the index gain ground to 11.65 in the longer term. The indicators suggest further downside momentum in the near term, and we expect to see further marginal softness.

Dollar Index 


The index weakened in recent days, falling to test the 50 MA level at 106.88 once again. The stochastics are oversold, but %K is seen tailing off on the upside, suggesting we could see a change of trend in the near term. The MACD diff is positive and has stalled in recent sessions, suggesting waning momentum on the downside. On the upside, the break above 107.55 could set the prices to test the 108 level before 100 MA at 108.86. Conversely, to suggest the outlook for lower prices, the index needs to take out the 50 MA support, which would signal a strong bearish momentum. We expect to see additional market softness in the near term before a trend reversal.



The pair rallied continued to strengthen from September lows, breaching resistance at 1.15, and is now trading at 1.19. The stochastics are diverging on the upside, with %K now overbought, and the MACD is positive and diverging. To confirm the outlook of higher prices, the pair needs to break above the 1.1976 level before the resistance at 1.20. Alternatively, if the pair finds resistance at current levels, the recent trend can reverse down to 1.17. Before this, the 50 MA level at 1.1849 needs to be broken below first as robust support. The appetite seems to have softened around the near-term resistance, and we could see a change of trend, but indicators point to further upside pressures in the meantime.



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