Another eventful week on the currency markets last week and I expect this one to be no different. Can Sterling get the job done and sustain a move above 1.30 the figure on Cable (GBP/USD)? Will it huff and puff and then fall slightly short? Like the British Lions, let’s hope for the former.
The Euro is the poster boy of FX markets at present. The single currency hit yearly highs last week after commentary from the ECB President, Mario Draghi. The Eurozone has been consistently publishing stronger data over the past few months and their economy has now moved out of a deflationary to a reflationary environment. He’s optimistic on the growth outlook for the region so investors are now backing the Euro in the ugly parade against both Sterling and the US Dollar.
EUR/USD had been fighting consistently with 1.12 the figure over the past month. We have now broke through that range and printed above 1.14 the figure. Are we going to see a further push higher and break through the psychological level of 1.15 in upcoming trade?
If you have a requirement to convert Euro’s into US Dollars please consider covering off some of your exposure on a SPOT basis. Feel free to contact the trading department for a rate of exchange. That way, you take advantage of around a 2% move in your favour compared with where we were a few weeks ago.
Where now for Sterling/Euro? I have been negative Sterling for a while and recent data and releases haven’t changed my mind. The key release this week for me from a UK perspective will be the inflation report hearings that are due out tomorrow. We are data heavy this week so I expect renewed volatility. Going into the summer months there is less liquidity in the markets so moves can be more pronounced and exaggerated than normal. If you are off to the beach for a few weeks to douse yourself in Hawaiian tropics then make sure you have covered off any requirements before then and have some protection in place. (That’s FX protection not UV protection).
You can view the movements on Sterling/Euro on the graph below –
Sterling was heavily on the back foot last week with interest rates being the hot topic at present. Will we now move out of a low global interest rate environment? The US has raised their rates so will the UK follow suit sometime soon? Sterling got some gas in the tank after the BoE Governor Carney said he would consider raising rates if he saw a sustained increase in business productivity. For me, I don’t think we’ll see a rate rise anytime soon from the UK. This will keep Sterling on the back foot over the coming months. With inflation running away quicker than Ben Johnson in a 100M sprint then I think GBP is going to be subdued for the summer.
If you have a requirement to purchase Euro’s from Sterling I would look at purchasing some on a market order at 1.14. Please contact the Trading department to implement an order at the suggested level. By the end of the summer I don’t think under 1.10 on GBP/EUR is out of the question so do make sure you have covered off a percentage of your exposure at current rates.
Selling Euro’s back to Sterling? We have the ECB (European Central Bank) meeting on Tuesday and Wednesday so look to have some orders in the market before we receive the commentary from these meetings. I think the Euro has further upside so consider staggering market orders to the downside from 1.1350 to 1.1250. If you have some time on your hands look at 1.12/1.11 and at a push 1.10 the figure over the coming months.
Our cousins across the pond will be lighting fireworks tomorrow to celebrate another year of independence. Will the data this week out of the US give the dollar a boost? We would need to see the data come in well above expectations to see investors flock back to the US Dollar. We have the FOMC (Federal Open Market Committee) minutes released on Wednesday followed by the NFP (Non-Farm payroll) figure on Friday.
Cable (Sterling/Dollar) was under pressure last week although has since staged a recovery.
You can view the price movements on the graph below –
If you need to purchase Dollars from Sterling consider covering off a large percentage on a SPOT basis. If you can secure 1.30 on a market please consider locking in at this level. This gives you the recent high of the trading range. Remember, it wasn’t that long ago we were well under 1.25. Please contact me for a rate of exchange on SPOT or alternatively to implement a market order to the upside at 1.30.
Expectations for the NFP figure out on Friday is for 180K jobs to have been created for June. We would need a number well above 200K to give the Dollar any meaningful boost. If we are well under 180K then expect a further fall in the dollar and a rally through 1.30 the figure on Sterling/Dollar.
I expect there to be a lot of activity towards the end of this week. Please make sure you have a strategy in place to take advantage of moves in your favour and also to protect you against any adverse movements.
Any questions in the interim please do let me know.
Have a fantastic week.
Written by Liam Alexander.