GBP/USD and GBP/EUR has hit a wall. As much as I would like the multitude of underground commuters, whom insist on staring into their various devices whilst simultaneously listening to music with no concept of their surroundings do the same, sadly it rarely transpires.
What now for Cable (GBP/USD) and GBP/EUR? I have my thoughts on the direction over the coming weeks although truthfully the currency markets will be about as easy to decipher as the Voynich manuscript. With volatility in the run up to June 23rd expected to increase further I would suggest a risk based approach to your short-term currency requirements.
The recent upside momentum meant we hit highs on GBP/EUR last week that were last posted in February. If you have a requirement to purchase EUR from GBP I would suggest covering off the majority on a SPOT basis and leaving yourself a small percentage to execute on a market order. The temptation is to get greedy after seeing the spike higher. I think the move is now overdone and we’ll see a gradual retracement lower. Of course, I may be wrong, and the sentiment may have shifted into everyone thinking the UK will 100% remain in the EU. Whilst I do think we will remain in the EU I think there are a few bumps in the road yet so this will create some downside risks for the Pound. If you can lock in the majority of your Euro’s now you give yourself one less headache for the beginning of the summer months. You can then re-evaluate your position after the referendum takes place.
You can see below the upside move on GBP/EUR last week on the back of various polls.
If you are a Euro seller? Growth in the Eurozone in the first quarter was better than expected although we now have political issues in Austria, Spain, France and Greece that are expected to play out further in the coming months. Mario Draghi, the ECB president, will have to walk the tightrope as usual pointing to a recovery whilst also highlighting ongoing risks. In short, it is going to be much of the same from the Euro over the next few weeks. Short term spikes of improvement followed by further downside. If you have a requirement to convert Euro’s into GBP I would suggest you consider converting a large portion of your Euro holdings into GBP now and should you think things might improve hold off on the remaining amount for a few weeks. As I always say, doing nothing is speculating. Have a price point in your mind that you want to achieve and if it reaches that price execute the trade there. Yes, it might move further in your favour once you have transacted although it might equally fall quicker than a Real Madrid defender in a Champions League final. Please get in touch with a member of the Aston team to discuss your upcoming requirements.
You can see below the sharp upside move in Cable last week with a strong performance from Sterling.
Indeed, the BoE Governor Mark Carney’s remarks on the possibility of a Brexit helped the Pound recover against its peers and mainly versus the US Dollar. Carney tried to instil confidence in investors and the market that whatever the outcome of the referendum the BoE has things in hand. I think things are in hand if we remain. If we leave, well, I think things will be about as well thought out as the SNP basing things on an oil price of 100 USD. As we all know markets hate uncertainty and whilst I don’t think there will be as much uncertainty as there was around the Scottish referendum there will be parallels and until risk is completely off the table there will be headwinds for Sterling. If you are a buyer of USD and you can achieve over 1.45 prior to June 23rd I’d convert your Sterling holdings into USD and take away the headache. Again, as I mentioned before, once the referendum is out the way you can re-evaluate your position. Please send me an email and we can discuss your individual requirements. If you are a seller of US Dollars to Sterling I would suggest you implement market orders. I believe the US will raise interest rates after a hawkish signal from the Federal Reserve with Janet Yellen commenting “probably in the coming months such a move would be appropriate”. I think we’ll see a retracement on GBP/USD so do please consider staggering orders from 1.46 to the downside. Please contact me to discuss appropriate levels to aim for.
Looking towards this week the data calendar is miserable today and tomorrow much like the British weather. Wednesday we have the release of the ISM Manufacturing PMI (May) that should give the USD a push higher although that will be the only light shining through the clouds. On Thursday, things start to look a little brighter although we may see some mixed spells with Mario Draghi speaking at the ECB press conference followed by an FOMC member across the pond and Governor Carney rounding off the day in the UK with hopefully some sunny spells. Going into the weekend we have the release of the NFP figure (Non-Farm payroll) on Friday that is expected to show a further improvement so that should translate into further US Dollar strength combined with the more hawkish rhetoric from the Federal Reserve.
If you have any questions please do let me know.
Have a fantastic week.
Written by Liam Alexander