The Olympics have drawn to a close. A fantastic medal haul for Great Britain and some amazing performances. I guess we’ll need to turn our attention back to all things ‘BREXIT’ though and stop pretending that we understand how the diving or gymnastic scores are calculated. 104.6, 84.2, 53.8, who knows why.
Data from the UK surprised to the upside on almost every release last week. We had inflation data in the form of UK CPI come in at 0.6% on Tuesday that signaled a 20 month high. In addition, the UK Jobs report was better than expected on Wednesday. The official jobless rate remained at eight year lows of 4.9% in July and the claimant count remained static at 2.2%, the same figure since May. Cable (GBP/USD) had a bounce higher on the back of the UK data and ticked up to around 1.3060 although it failed to hold the upside and retraced lower and challenged 1.30 the figure to the downside.
What does all this amazingly upbeat data mean for the UK and Sterling post BREXIT? Not a lot really. We’re yet to see the full impact of ‘BREXIT’ as it hasn’t yet filtered through to figures and a lot of the data that is coming out still has elements of pre-BREXIT. By November I think we’ll have a much clearer picture on where the UK sits. Do I think the UK is going to suffer a cataclysmic event as many doom-mongers insisted? Absolutely not. Do I think we’re going to be in for a couple of years of increased uncertainty that is going to play havoc with Sterling? Absolutely.
Where is GBP/USD going to go? If you look at the graph below from last week to this morning you can see short-lived spikes and dips on a daily basis. This is going to be the general theme for the remainder of August. We’re going to see a lack of clear direction on most majors as there is less liquidity whilst people are on the beaches drinking strawberry daiquiris. I would caution however that I think risks on GBP/USD are skewed to the downside. If you can achieve over 1.30 to purchase USD from GBP I would try and lock this in on a SPOT or Forward Contract basis. Please contact myself or one of the trading team for a rate of exchange.
If you hold USD and need to convert back to GBP if you can achieve 1.30 in upcoming trade I’d suggest it may be prudent to lock in a significant portion of your exposure at that level. This takes some risk off the table whilst allowing you some room to take advantage of any upside moves. Please contact myself or one of the trading team to discuss a SPOT transaction.
You can also look at implementing market orders to try and take advantage of any data driven moves. Please get in touch with one of the team to discuss appropriate levels to execute at.
Sterling/Euro is challenging fresh lows. We reached a three year low on Friday. Since then we’ve had a retracement higher although we’re running out of steam. Sterling has inevitably been under pressure. The EUR is proving to be its resilient self with EUR/USD targeting 1.13 the figure although struggling to maintain the upside. Where does GBP/EUR go? I think we may see another attempt at 1.15 the figure although I think for the rest of August this may be the lower end of the range. I would expect GBP/EUR to trade between 1.15 – 1.18 for the remainder of the summer. If you look at the graph below you can see the volatility on Sterling/Euro last week –
All of the focus has been on how the UK is going to deal with BREXIT. I expect the question to be gently pushed over to the Europeans in the coming months so we may see some EUR weakness come into play. Indeed, the Italian Prime Minister Renzi is hosting Merkel and Hollande in the Garibaldi today. No, it’s not a London pub. It’s a warship that normally patrols the Med although today is hosting discussions between the three leaders. I’d imagine Economic growth to Monetary Policy, the way forward for Europe post BREXIT, political turmoil, the Italian Banking system, Turkey, migration, and the upcoming 27 member states meeting in Bratislava next month. I’m sure the food and wine on offer will be agreeable as I don’t see them agreeing on much else.
If you have a requirement to purchase EUR from GBP please contact myself or a member of the team to discuss implementing market orders to the upside in the coming weeks.
As mentioned above we’re going to be in for light trading for the remainder of August. We have a fairly light calendar this week in terms of data. We have GDP out of Germany on Wednesday and durable goods orders out of the US on Thursday. We have preliminary GDP figures out of the UK and US and we also have the Federal Reserve Chairman Janet Yellen speaking on Friday.
With reduced volume in the market any shift in sentiment will move markets more sharply than normal. Please do get in touch to discuss any upcoming requirements you may have.
Have a fantastic week.
Written by Liam Alexander