GBP/USD - Puts in demand ahead of the BOE Super Thursday event

• Risk reversals show strong downside bias.
• Cable's fall from 1.4346 to 1.3838 is a blessing in disguise for BOE?

The Bank of England (BOE) will release a triple whammy of data today - the interest rate decision at 12:00 GMT, minutes from the monetary policy committee (MPC) meeting and the quarterly inflation report. Billed as "Super Thursday", the event usually has a long-term impact on GBP/USD.

To start with, the options market has regained a strong GBP bearish bias this month. For instance, one-month 25-delta risk reversals are being paid at 0.725 GBP puts compared to 0.35 GBP calls two-weeks ago.

Also, overnight 25 delta risk reversals have dropped to -2.40 (are being paid at 2.4 GBP puts) - the lowest level since June.

Clearly, the options data indicate the investors are hedged against/positioned for a further decline in the GBP/USD pair.

That said, the recent drop in the GBP/USD from the post-Brexit referendum high of 1.4346 (Jan. 25 high) to 1.3836 (Feb. 6 low) has created room for the BoE to deliver a somewhat hawkish message along with status quo decision on the rates, Reuters report says.

The pound may rise sharply if the BOE's quarterly inflation report sounds hawkish. In such a scenario, investors would be forced to unwind long puts, thus leading to an exaggerated move to the upside.

GBP/USD Technical Levels

As of writing, the spot is trading just below 1.34. The 5-day MA and 10-day MA are trending lower, having seen bearish cross earlier this month. So the short-term set up is bearish.

A break above 1.3980 (Jan. 30 low) would expose the 10-day MA (now) seen at 1.4062. A close higher would signal bearish invalidation and open doors for 1.4278 (current month high). On the downside, breach of support at 1.3836 (Feb. 6 low) could yield a drop to 1.3797 (61.8% Fib R of Jan. 11 low - Jan. 25 high). A close lower and Pound could soon fall into troubled waters near 1.3666 (50-day MA).