Sterling retreated in U.S. trade on Wednesday, giving back some of its earlier gains as comments from Prime Minister Boris Johnson signaled continued intransigence in Brexit trade talks.
GBP/USD rose during London trade after a senior Brexit-supporting minister indicated scope for a compromise over the sticking point of fishing nL9N2FJ00Z, notching a high of 1.3476 by the U.S. session, within a whisker of Friday's 2020 peak at 1.3540.
Optimism eroded after Johnson said the UK remained ready to depart on Canadian or Australian trade terms in the event that negotiations failed nS8N2I904N.
The market appears positioned for an 11th-hour deal, though elevated GBP option volatilities betray worries. One-month ATM volatility is near recent trend highs, excluding March's COVID hiccup, and 25D risk-reversals near trend lows hint at future GBP weakness.
Option delta hedging may be enhancing GBP strength as sterling put option buyers buy GBP in order to maintain delta neutrality.
IMM positioning shows a marked decline in GBP shorts 1096742NSHT versus longs 1096742NLNG since August as specs lightened shorts ahead of the year-end Brexit deadline.
Technically, GBP/USD continues to climb higher with the 10-day moving average.
However, a break below the 10-DMA puts 30-DMA support at 1.3245 and the daily cloud top and twist at 1.3079 in sharper focus.
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