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Macro and Vol Commentary

Cable has buckled in recent weeks as investors favoured the dollar due to the conflict in Ukraine. What happens now?

Economic data

  • Q4 GDP was stronger than expected for the U.K., with the economy growing 6.5%, following a revised 7% in Q3.
  • Industrial and manufacturing production grew faster in Q4 than the quarter prior at 0.4% and 1.3%, respectively, on a year-on-year basis.
    • The monthly figures are starting to plateau, with January’s industrial production 0.1% M/M down from 0.3% M/M, and manufacturing production M/M 0.2%, flat in December.
  • Construction output grew at a robust rate, gaining 7.4% y/y, up from a revised 3.6%.
    • Construction output in January declined 9.1% Y/Y, but again the monthly output is lower at 0.5%, a decline from 2%.
  • Total business investment was down in Q4 to -0.8% Y/Y, down from 3.2% Y/Y in Q3.
  • Jobless claims change was -31.9k in January, with ILO unemployment rate 3 months at 4.1%, average hourly earnings have grown once again at 4.3% for December.
    • The claimant count rate was 4.6% in January, which is flat on the previous month’s rate.
    • Sanctions from the U.K. will prompt those institutions linked to Russia to reduce their business and potentially cause people in these institutions to lay off workers. However, this will have a limited impact on unemployment in the near term.
  • Inflation data for January was high; CPI was 5.5% Y/Y and CPI Core Y/Y at 4.4%. We see significant upside to these figures in the near term due to higher commodity prices because of the war in Ukraine and sanctions.
    • We see inflation breaking towards 7% In the near term, resulting in reduced consumer spending as energy bills and prices at the pump rise.
    • Disposable income will be lower, and we’d expect to see that reflected in lower retail sales and consumer expenditure.
  • Retail sales, including fuel were 1.9% M/M, up from -4% in December, the excluding fuel retail sales were higher at 1.7% M/M, up from -3.9% M/M.


  • The C.B. have increased rates to 0.5%, looking to counteract high inflation. The market is now pricing in a larger rate hike in June, and this would likely offset the higher inflation due to the conflict in Ukraine.
  • The rate hike could be 50 basis points, with markets suggesting we could see 100bps by June.
  • If rates reach 1.5% this will start to help cap inflation, but the global economy could be entering a period of stagflation which will present further difficulties for the economy.
  • In conjunction with rising national insurance, higher energy and food prices are likely to lower medium to long-term inflation.
  • The prospect of a recession in Europe and the U.K. is rising, but the U.S. should be slightly more protected from a recession, but inflation is higher in the U.S.
  • As energy and food prices increase, the consumer will struggle in the near and medium-term.
  • The initial rate hike could be positive for cable, but the probability of a recession is rising, which could trigger weakness for the currency in the medium to long run.
  • We saw an increase by 2.9% of the BOE’s long term repo operations to £2,891m , sterling-denominated bond holdings declined by -0.3% to £17,289m.

Cable has sold off as investors flocked into the USD as the conflict in Ukraine started, we have seen cable hold above 1.30. The Fed this week is integral for market expectations and how the CB are going to counteract inflation and the conflict in Ukraine. We favour GBP over the Euro, but the Fed will likely increase rates as well, and while the cost of living is rising in this country as well. The conflict in Ukraine looks like it will continue in the medium term; this is causing food and energy prices to continue to rise, food protectionism is a potential threat. Europe is likely to struggle because of the higher energy and gas costs. The U.K. imports little Russian gas, but OPEC has limited spare capacity to increase production in the longer run. We expect the dollar to remain strong due to the higher rates from the Fed and the U.S. probability of a recession in 1 year is 15% compared to 17.5% in Europe. The U.K. economy is still weakening, and the savings consumers have accumulated in recent years due to COVID have been drawn down and GDP forecasts are being slashed. This could also impact equities flows and prompt stocks to decline as retail investors liquidate positions as their disposable income declines. Liquidity is stressed in the market, and this causes greater volatility at time when traders need credit, position liquidations to pay margin requirements have impacted commodities but the FX sector has been less impacted. Sterling remains exposed to the downside due weakening underlying data, and a bid for the dollar during the uncertainty and conflict. While support at 1.30 has held firm and this could trigger a short-term bounce but we expect this to be short-lived. 

Volatility Commentary

U.K. not being part of EU mainland has to some extent limited the losses generated by Eastern tensions. That said, GBPUSD 1-month volatility has been realising higher than implied, though by a lower magnitude when compared to EUR. We nevertheless see scope for GBPUSD volatility to bounce back in the near term on the basis of persistent and higher inflationary pressures, and thus a more hawkish BoE. All in all, we favour selling Vol in the at-the-money region and buying Vol in the out-of-the-money area in a bid to gain from larger movements in the wings of the volatility smile when compared to the ATM region.

GBPUSD 1-month Realised and Implied Volatility

GBPUSD Trade Idea (Exp 13 April 2022)

  • Sell GBPUSD Call, 1.28 Strike, GBP 1mio Notional, Rec USD 31.9K.
  • Buy GBPUSD Call, 1.318 Strike, GBP 2mio Notional, Pay USD 17.3K.
  • Sell GBPUSD Call, 1.3377 Strike, GBP 1mio Notional, Rec USD 3.2K.
  • Total Structure Premium net receive USD 17.8K

Positioning Charts

USDBRL NDO Positioning Data 24/02/2022 - 03/03/2022

Options positioning for USDBRL continues to favour the downside. Options executed trade a similar range to the week before, put options due to expire in the near term suggest cover through 5 towards 4.80. Put options on with expiries in 2023 was also favours the downside with the larger notional value suggesting higher conviction. This could be a election play for the BRL.

USDBRL NDO Positioning Data 03/03/2022 - 10/03/2022

USDCNY Vanilla Positioning Data 24/02/2022 - 03/03/2022

Options executed in the week to March 10th suggest that there is little conviction in the market. Options due to expire in the next week trade a wider range with puts covered down to 6.20, calls were traded to 6.45.  The volume was lower in the week to March 10th and this suggest limited appetite for the market. The market has lost some conviction but there is still a moderate favour to the downside. 

USDCNY Vanilla Positioning Data 03/03/2022 - 10/03/2022

GBPUSD Vanilla Positioning Data 10/01/2022 - 10/02/2022

The shift in sentiment has been reflected in the market, the range is narrower but there is still a moderate favourability to the downside. There this little cover below 1.30 in the near term and this has provided some moderate support. However, upside cover is also lighter with little cover above 1.40. We expect GBPUSD to trade within the bottom end of the range at 1.30-1.35. 

GBPUSD Vanilla Positioning Data 10/02/2022 - 10/03/2022

Charts and Tables

FX Expiries

Volatility Grid

Historical Spot FX Volatility (30D Rolling)

FX Matrix (today)

Weekly Change

Key Events & Releases

Technical Analysis

JP Morgan Global FX Volatility 


The index has continued to strengthen and broke above key resistance at 10.00, helping to confirm the ascending triangle. The index has, however, struggled above that level, falling back to trade at 9.57. The stochastics are rising, with %K in the overbought territory, and the MACD diff has just converged on the upside, a strong buy signal. In order to confirm the outlook of higher prices, the index needs to reaffirm support at 9.50 and then take out key psychological resistance at 10.00. On the downside, a rejection of 9.50 and a break back below 50 MA at 9.41 would indicate a rejection of the ascending triangle. To indicate a strengthening in the current trend, the index needs to break above the near term resistance. We anticipate the index to find support at 9.50.

Dollar Index 


The dollar index has been gaining in recent weeks, but the index struggled above 99.295, creating a double top formation. The bullish today after a strong bearish candle suggests continued appetite for higher prices, but the index needs to break above the near term resistance to confirm this. However, the stochastics point to an end of the uptrend, with %K/%D converging on the downside in the overbought territory and the MACD diff being positive and converging. If today’s weakness prevails, we could see prices break below the trend support and 50 MA at 98.48 to test 98.00. However, this level has been robust in the last couple of weeks, and we could see prices find support at that level and continue to follow the upward trend. On the upside, if there is an appetite above 99.29, this could trigger gains to 99.50. The most recent indicators and the double top formation suggest we could see the index decline in the near term, but the index needs to breach the near term support to confirm this.



The GBPUSD has declined in recent weeks as protracted selling pressure prompted a decline and test of 1.30. The stochastics and MACD diff are pointing to a change to more upside momentum, with the former diverging out of the oversold territory. If, however, the longer-term trend persists, it may set the scene for lower prices towards 1.298 before targeting 129.0. On the upside, we need to see prices find support around 1.301 before pushing back towards 1.31 and 50 MA at 1.3173 in the medium term. The indicators are pointing to a near term trend reversal, but the pair needs to break above the robust resistance of 50 DMA to confirm this trend in the longer term.



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