Like the Chas & Dave songs Theresa May is finding there “Ain’t no pleasing you” when it comes to the EU and the British public. Should we take the title of another song “mustn’t grumble” into the final leg of the negotiations with the EU or will that lead to the inevitable crash bang and 2001 release “wallop” on the final deal and outcome? The meeting in Salzburg was meant to provide clarity. It didn’t.
Sterling is going to move considerably in either direction in Q4’18. Sterling was making some solid upside moves against EUR with it climbing to just below 1.13 at one point. Those with ‘take profit’ orders in the 1.12’s had orders filled and took advantage of the spikes in the market. The direction and sentiment for Sterling/Euro has since shifted to the downside.
You can view the movements on Sterling/Euro on the graph below –
The move is largely driven through EUR/USD as it has pushed up into the high 1.17s thus pushing GBP/EUR lower. Of course, some negative sentiment around Brexit has exacerbated the move lower for Sterling. EUR/USD advanced again this morning on the back of the German IFO figure that came in at 103.7, slightly above expectations. Other data out of the EU this week is in the form of inflation data that is released on Friday. If you have a requirement to sell EUR back into Sterling do consider implementing ‘take profit orders’ to the downside. Please contact the trading department to discuss technical levels that are achievable to execute at. This week we have a light data calendar out of the Eurozone and the UK so any significant price movements on GBP/EUR are likely to come from ‘Brexit’ headlines and noise. We do have the ECB president, Mario Draghi, speaking on Thursday so this will likely move the EUR in a positive or negative direction dependent on his commentary.
Cable (GBP/USD) suffered a sharp decline on Friday falling from the high 1.32s into the 1.30’s. This was after the UK Prime Minister, Theresa May, said that negotiations with the EU are at an ‘impasse’. That put hopes for a positive outcome and favourable deal between the UK and EU further away than ever. However, Sterling has made a small recovery this morning on comments from the UK Brexit Secretary, Dominic Raab, that apparently the Government remains confident on a deal. What’s the phrase, “a week is a long time in Politics”. A weekend now seems like a lifetime if we can go from a significant Sterling fall to a positive outlook on the Monday morning. Expect these moves on Sterling for the next 3 months. The ‘he said she said trade”. There’s largely no real substance behind these soundbites although the market will move on them short-term in any case.
You can view the movements on Sterling/Dollar on the graph below -
Hopefully this week we get some respite from Brexit noise. The US is likely to be more in focus this week. Will the dollar come under further pressure as it did for the majority of last week around talk of tariffs and trade wars? We have the Federal Reserve meeting this week and that comes with the interest rate decision. Will we see another interest rate increase of 25bps from the Fed Chairman, Jerome Powell? The market has largely priced this in already so expect a modest uptick in the US Dollar this week. Other than the Federal Reserve meeting we have US GDP Annualised (Q2) released that is expected to print 4.2%.
Rounding off the week from a UK perspective we have the Bank of England Governor, Mark Carney, speaking on Thursday. Questions will inevitably be skewed to Brexit rather than focusing solely on the UK economy so this may impact Sterling dependent if Carney engages on those questions or focuses solely on the economics. On Friday we have GDP (QoQ) (Q2) out from the UK that is expected to print 0.4%. Any figure lower than this then Sterling could have a wobble to the downside.
If you have any questions please get in touch directly.
Have a fantastic week.
Written by Liam Alexander.