ACM Update Monday 10th August 2020

August is normally a relatively quiet month in the markets. Not this year.

The following reads like a terrible tasting menu - Brexit, UK/US trade talks, an escalation of US/China tensions, unemployment set to increase, a shaving of every countries GDP rounded off by people pretending to wear masks properly. I’m sure Bryan Adams won’t need to worry about someone pinching his ‘Summer of 69’ song for this year.

Sterling is holding firm above 1.30 the figure. Key this week for the Pound is the ILO Unemployment rate (3M) (June) and preliminary GDP(QoQ) (Q2). Expectations are for a print of -4.2% against a previous print of-3.9%. I expect it to come in better than expected and that may give Sterling a shot in the arm. As detailed previously, once the furlough scheme comes to an end in the next couple of months we will have a better understanding of the true picture. The band aid needs pulled off at some point. On GDP, whilst an expected print of -20.2% for GDP is horrific this was for the height of the pandemic in April/May. The UK economy, whilst evidently far from in fifth gear, is trundling forward now. It has bounced back quicker than expectations in May.

You can view the recent movements in Cable (Sterling/Dollar)in the graph below –

 

We had the NFP figure (Non-Farm Payroll) released Friday that showed the US economy added 1.76M jobs in July. That beat market expectations. The unemployment rate continued to fall with a print of 10.2% from the high of 14.7% seen in April. Of course, the jobs market is far from in good health although there is improvement. With EUR/USD now looking toppish around 1.18 could we see the US Dollar have a round of momentum? Potentially. A resumption and conclusion to stimulus negotiations before politicians leave for an August recess is a must.

If you need to purchase USD take advantage at 1.30 and above. Please contact a member of the trading department to discuss your specific requirements. If you are selling USD/GBP we can implement take profit orders for you to the downside at staggered levels. Again, please contact the trading department and they can discuss technical levels with you.

On Sterling/Euro things are about as exciting as standing in a queue with a mask on. We are trading in a range with no clear move in either direction apparent. You can view the recent movements in the graph below –

 

If you need to purchase EUR from GBP please consider implementing take profit orders around 1.11 the figure. Should we see a modicum of positive news in UK data releases this week coupled with a dip in EUR/USD this may give GBP/EUR a nudge higher. Please contact the trading department to discuss your requirements.

If you are selling EUR into GBP consider staggering rates to the downside. In terms of European data this week we are fairly light. We have preliminary GDP figures out of the Eurozone (QoQ) (Q2) and (YoY) (Q2) with prints of -12.1% and -15% expected.

The next four months for UK PLC are going to be extremely turbulent. The V shaped recovery may take place. A second localised lockdown for London may take place. The world may be back to ‘normal’ end of year. There are so many variables that one can only take a risk based approach to their currency requirements. Err on the side of caution more than you normally would and have a conversation with our trading department around Forward contracts and other trading mechanisms.

Enjoy the sun this week.

Any questions please feel free to get in touch.

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.