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Markets Brace for Volatility Amid Key Data and Central Bank Moves

08-10-24

 

Volatility looks likely to increase over the coming weeks as economic news joins geopolitical events to heighten risks across the board. Markets are gearing up for a busy two-week period, beginning with the start of the U.S. earnings season led by major banks, followed by the release of U.S. inflation data (CPI) on Friday. This week will also feature numerous speeches from Federal Reserve officials, coming on the heels of a strong U.S. jobs report from October 4, 2024, and the release of the FOMC minutes.

The spotlight remains on the Federal Reserve as it continues to follow a data-driven approach, emphasizing the importance of incoming economic indicators in shaping the pace of future interest rate decisions. Last week’s robust jobs report prompted markets to rule out a 50 basis point rate cut in November, with the 10-year Treasury yield hitting 4%, contributing to the Dollar’s strongest performance in two years.

In the UK, Sterling has retreated from recent highs amid speculation of further rate cuts from the Bank of England (BoE). Markets are eagerly awaiting key UK economic data, including GDP figures on Friday, October 11, along with manufacturing and industrial production numbers. Next week, the focus will shift to employment, inflation (CPI), and retail sales, which will provide additional insights into the UK economy.

Meanwhile, attention also turns to the Eurozone, where CPI data and the European Central Bank’s (ECB) interest rate decision, followed by a press conference, will offer further perspective on the region’s economic outlook.

If you think that the uncertainty surrounding these upcoming data points will result in increased volatility in the GBP/USD, you may consider buying a strangle. This strategy gives you the opportunity to capture any movement in the GBP/USD in either direction, and gives you the flexibility to close either the call or put at any time as the price direction becomes clearer.

The chart below shows GBP/USD from the start of 2024.

 

Long Strangle

buy +1 GBPUSD 06-Dec-2024 1.33 Call @ $0.0090 = $562.50 debit
buy +1 GBPUSD 06-Dec-2024 1.29 Put @ $0.0090 = $562.50 debit

Trade Idea

Long Strangle

By selecting the 6th of December 2024 expiry, you are covered for upcoming data, October UK budget and the US election on November 5th, 2024. 

Underlying GBP/USD Dec 24 Future Price = $1.3100 (as of 08/10/2024 at time of writing)  

Buy: 1 (number of contracts) x $0.0090 (contract price) x $62,500 (contract size) = $562.50 debit  

Buy: 1 (number of contracts) x $0.0090 (contract price) x $62,500 (contract size) = $562.50 debit  

Total consideration of $1,125 (excl. fees + commissions)

Defined risk profile – maximum loss is equal to the net option premium paid (+ fees and commissions)  

This strategy will break even if GBP/USD Dec24 Future Price = 1.3390 or 1.2810 at expiry on 06-Dec-2024 

Maximum loss $1,125 (excl. fees + commissions) 

Written By

Sebastian Blanco

Desk Broker

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