The downtrend on Sterling resumed last week. Cable (GBP/USD) fell to a weekly low of just under 1.44 the figure prior to the release of the NFP (Non-farm Payroll) figure on Friday. The forecasted figure was for 164K for May. The figure came in at 38K. The dollar got sold quicker than Usain Bolt can do 50 metres.
GBP/USD broke back through 1.45 immediately after the release. We then moved higher, then moved lower, then moved higher, then moved higher, then moved slightly lower then moved higher again, then lower. You get the picture. Over the next few weeks you’re going to see GBP/USD jump around more than a kangaroo on a bouncy castle. Will we now see a sustained upside move? I doubt it. As I said last week I think we’ll see spikes on an intraday basis then we’ll see a further gradual downside move over the coming weeks. If you are a USD buyer, and as I said last week, if you can achieve 1.45 to purchase USD from GBP I would look to cover this off.
Conversely, if you are a USD seller I would look to lock in as much Sterling as you can at current levels. Why? Historically you’re at extremely favourable levels to convert USD into GBP. It wasn’t that long ago when 1.55-1.60 was considered the range for Cable. Following on from my comments last week I would suggest a risk based approach to your currency needs for June. There will be a lot of volatility and whilst I think we may see some further downside moves on GBP/USD the poor jobs figures out of the US has now thrown a spanner in the works in the likelihood of a summer rate increase from Janet Yellen/the Federal Reserve. Markets will be focusing their attention on Monday to Yellen’s commentary where she’ll likely re-iterate the upbeat outlook on growth and inflation whilst playing the central banker role superbly emphasizing caution.
You can see the volatility last week on GBP/USD on the graph below -
If you look at the graph below, technically speaking, GBP/EUR took a kicking last week.
From the giddy heights of 1.32 at the beginning of the week we broke through the support level of 1.28 the figure on Friday afternoon. EUR/USD broke substantially higher on the back of the poor NFP (Non-Farm payroll) figure posting fresh highs which in turn dragged GBP/EUR lower. My message will be the same for the next weeks. If you have currency requirements for June take care of them sooner rather than later as the closer we approach to June 23rd the more volatility we’re going to have. Yes, we can structure a strategy that will allow you room to take advantage of any upside moves in your favour caused by volatility. However, I always err on the side of caution and suggest you leave a small percentage on a market order basis and cover off the majority of your exposure through SPOT and Forward Contracts. This month more than most I would play things over cautiously. Please contact a member of the Aston team and we can discuss your upcoming requirements, current levels and levels that we think are realistic to execute at over the coming weeks.
The ECB meeting was as expected last week as they took the wait and see approach. Although there is a sliver of optimism shining through from the Eurozone there are still risks in the outlook for inflation and growth. Yes, Q1 growth performance was strong although I’d imagine that came as a welcome surprise rather than anything solid for them to base projections or policy on. All options were kept open by Draghi as the main events this month are the EU referendum for the UK and the next Fed meeting. We’re in a wait and see mode to post referendum.
This week the data calendar is fairly light other than the aforementioned Janet Yellen speaking on Monday. Tuesday we have GDP (QoQ) (Q1) and (YoY) (Q1) out of the Eurozone and the only other release of note is the monetary policy statement and press conference from the RBNZ (Royal Bank of New Zealand).
If you have any questions on anything please do let me know.
Have a fantastic week.
Written by Liam Alexander