Last week Sterling soared against the Euro and US Dollar with a no-deal exit looking less likely. Will this uptrend continue or will there be a retracement in Sterling with the key UK parliamentary vote on Brexit ‘Plan B’ this week?
Cable (GBP/USD) briefly traded above the 1.32 handle on the back of a resurgent Sterling and a US Dollar sell off prompted by the potential of the Fed’s balance sheet normalisation happening sooner than expected. Some of the gains have been given up with some profit taking after the large moves higher last week.
You can view the moves in Sterling/Dollar last week on the graph below –
Will Sterling/Dollar have another push higher or will see a downside move this week? We have the Bank of England Governor, Mark Carney, speaking today followed by the Federal Reserve’s monthly policy statement and interest rate decision on Wednesday. On Friday, we have the NFP (Non-Farm) payroll figure released with a print of 168K expected. Tomorrow, from a GBP perspective, the Parliamentary vote on Brexit Plan B is going to be a key short-term driver. If the UK secure any amendments to the backstop then this may assist the Prime Minister in getting her Brexit deal through Parliament. This would give Sterling a shot in the arm and push it higher. However, weekend reports suggest the Irish deputy PM ruling this out. Another week closer to ‘Brexit Day’ and things are still as clear as mud.
If you have a requirement to purchase USD this week take advantage of the recent moves on SPOT. Alongside this do consider implementing take profit orders ahead of tomorrow’s vote. Please contact the trading department to implement these and discuss technical levels.
If you’re selling USD back to GBP you have to protect against any further moves higher in Sterling. At present, historically, rates are still at attractive levels to go back into GBP. Please contact the trading department to discuss a strategy to give you some upside potential whilst protecting against any adverse moves.
Well well well. Finally, we’ve broken out of a tight trading range. Sterling/Euro has ascended to the dizzying heights of above 1.15 the figure. You can view the recent movements on the graph below –
If you have a requirement to purchase EUR I would suggest covering off some on SPOT to take advantage of the recent gains. In addition, there may well be more upside in GBP/EUR so consider implementing take profit orders at staggered levels. In terms of specific technical levels to aim for please contact the trading department.
As always, Brexit and the specifics of how we exit the EU will largely determine the direction in GBP/EUR for the foreseeable future. With the March deadline fast approaching you may see heightened volatility in this currency pair. Please make sure you have a strategy in place to take advantage of moves in your favour whilst protecting downside risk. In addition to the UK parliamentary vote tomorrow we have GDP (QoQ) (Q4) and (YoY) (Q4) out of the Eurozone on Thursday. Expectations are for prints of 0.2% and 1.2% respectively. The ECB president, Mario Draghi, is likely to remain balanced on a variety of topics. However, with slower growth being more evident there may be a slight dovish leaning. Draghi is speaking in the European parliament later today although I don’t expect anything new from him on rate hikes.
If you have any Sterling exposure please do get in touch with us. The markets are likely to be more volatile in the coming weeks so make sure you have a plan in place around your currency requirements
Have a fantastic week.
Written by Liam Alexander