GBP/USD has been caught in a range so far in August, supported by 1.3000, but can't break March highs 1.3200-10 and probable barriers above.
Can forward- looking options offer clues on the near-term outlook?
There has been some demand for options that would benefit if GBP/USD extended its recent rise to 1.3500 (December's longer-term peak), especially when spot neared 1.3200, and many of those options are said to remain in play.
Implied volatility gauges future volatility and helps determine option premiums.
Risk reversals determine how much implied volatility is assigned to option strikes in one direction over the other.
One-week-expiry risk reversals trade at a small premium for GBP calls over puts (topside); one-month has yet to be convinced, although it does trade at its smallest GBP put premium since the start of the coronavirus crisis.
If GBP/USD can erase March highs/barriers and one-month risk reversals can adopt a GBP call premium, it would reinforce the likelihood GBP/USD will extend gains toward those December highs.
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GBP/USD 1-week and 1-month 25 delta risk reversals Click here