Brexit seems broken and the markets have finally woken up to the fact that Mrs May might not be able to keep her job, never mind bring home the bacon when it comes to the EU summit in December. Now I don’t know about you but I’m no vegan and when EU chief negotiator Michel Barnier suggests that we will have nowhere to put our Christmas cards if Mrs May’s cabinet collapses as hard as the negotiations, its not Bungling Boris or Environment Minister Michael “Et tu!?” Gove that I am looking towards for a rescue.
UK property prices are on their way down and according to credit card company Visa, British shoppers are being nifty and thrifty as we head towards the inevitable festive period evidencing the fifth fall in spending over the past six months, plunging 0.9% m/m and 2% y/y). Pay increases, where they even exist, cannot keep pace with inflation, which is higher mostly due to the weaker pound. The only good news about any of this for the UK is that if we have no Brussels we might have no brussels by Christmas.
Cable is trading at 1.3090 at the time of writing, down from a high of 1.3180, which is already below the close at 1.3190. It had reached 1.3080 earlier in the day. 1.3080 still remains a line of support before 1.3030, which is the bottom of the range. Resistance is at 1.3180 and 1.3220.
On Wednesday this week UK Unemployment Rate and average earnings are released and the US gives Retail Sales and CPI for October. Thursday sees UK Retail Sales announced but market commentary has suggested that in the UK we could be looking down the barrel of relatively poor pre-Christmas sales.
The slow pace of the weak and wobbly Brexit negotiations joins the slowing pace of the economy for the UK. While the US has their own troubles, the pound remains under increasing pressure. Clients with USD requirements might wish to take advantage of the recent moves by securing funds with a series of spot and forward contracts.
GBP/USD movement can be seen on the graph below:
Tuesday will see the UK publishing RPI, CPI & PPI reports for October and the EU (and German) showing off their GDP for Q3. The President of the ECB is hosting a conference at the Bank’s base in Frankfurt. This particular event is a panel that also consists of other heavyweights: Fed Chair Yellen, BOJ Governor Kuroda and BOE Governor Carney. Any comments about their common problem, inflation will be eyed as hints about the next moves.
The pair is currently holding around the 1.1233 support. A clean break below this level could be indicative of a move lower to 1.1050. Short term there is a lot more for the UK to worry about than the EUR as the markets seem not to care too much about what happens in Europe. Clients selling GBP may want to hedge further downside risks by securing funds on spot or forward contracts after tomorrow.
GBP/EUR movement can be seen on the graph below:
This pair managed to tick up amid unremarkable data from Europe and some weakness in the US dollar. German factory orders beat expectations while industrial output dropped by more than had been anticipated. The EC’s forecasts were upgraded and Eurozone optimism remains strong, as if there really is “Nothing to see here!” in Catalonia. How can our European cousins be so cheerful? Well, the most basic fundamental they can rely on is a trade balance surplus driven by German exports. This means that when nothing happens, the single currency is bid and rises.
During this week, the pair also enjoyed the USD’s relative weakness, amid reports of a delay in the tax reform, Glorious Leaders Donald Trump and Kim Jong Un engaging in a thinly veiled exchange of insults that would have both of them thrown out of a weight watchers anger management meeting, Trump’s capitulations in his speech to the Chinese Secretariat and another cosy conversation with Putin at the ASEAN summit. GDP data could provide a “shot in the arm” to the EUR, as growth remains positive. The USD has already made its strides and political issues may pressure it beyond its ability to weather the storm.
Euro movement against the Dollar can be seen on the graph below:
Not trading your currency is still a risk. The markets will move, volatility and relative values will vary but whatever your foreign currency exchange and international payment needs, you can rely on the team here at Aston Currency Management. Please do not hesitate to get in touch with us, we look forward to hearing from you. Now, if you will excuse me, I have to check on my potatoes and count my blessings. Have a great week.
Written by Damien Lipman