ACM UPDATE MONDAY 12TH AUGUST 2019

Sterling continues its descent lower. The Pound has touched new multi-year lows against both the US Dollar and Euro. Have we hit the lows or is there more room to move lower?

Sterling dropped further on Friday. Figures showed that the economy shrunk by 0.2% in Q2, the worst performance in more than six years. Is it all down to Brexit doom and gloom? No. There is a global slowdown, consumer confidence and retail sales aren’t where they should be due to uncertainty on the economy, we had car manufacturing plants shutting down and the unwinding of stockpiling in Q1 that fed into Q2 figures. If we look at Germany’s Q2 numbers they contracted at 0.1%. Some semblance of balance is required rather than the red top headlines.

There is no hiding from it though, UK PLC isn’t where it should be. Where next for the embattled pound? As I’ve said numerous times over the past few months I’ve always thought the summer was going to prove Sterling negative. I don’t see much upside over the next few weeks although breaking through 1.20 to the downside on Cable (Sterling/Dollar) will prove a challenge as there will be strong resistance at this psychological level.

You can view the recent movements on Sterling/Dollar on the graph below –

GBPUSD 12082019.JPG

If you are holding US Dollars I would look at covering off a sizeable portion of your holdings at current levels. I think there will be a lot of resistance at 1.20 the figure. Please contact the trading department for a SPOT or Forward rate on USD/GBP. To put into perspective where we are currently trading, the last time we were at these levels was 1985. The movie ‘Back to the Future’ was released that year. How we could all do with the DeLorean now!

We have the ILO Unemployment Rate (3M) Jun released tomorrow followed by Average Earnings excluding bonus (3Mo/Yr) (Jun). Both numbers are expected to print 3.8%. Any movement in a positive direction may give Sterling a boost to the upside. From across the pond tomorrow we have inflation data in the form CPI (Consumer Price Index) releases and then UK CPI on Wednesday. Finishing things off from a macro perspective we have US Retail Sales released on Thursday.

If you need to purchase USD from Sterling I would look at implementing take profit orders to the upside and try and take advantage of any intraday moves in your favour. Might Sterling/Dollar be trading back at 1.30-1.40 end of October? That depends on a deal being cobbled together – that is a big ‘if’ at present with the UK Governments stance on negotiating at present. However, there is no ‘normal’ or ‘new normal’ any longer so 1.30-1.40 is a possibility end of October. Likewise, 1.15 on Sterling/Dollar is a possibility. I’d always suggest covering off some of your exposure then you have a level to work from and you de-risk your position. Please do get in touch with our trading department to discuss your individual requirements.

Sterling/Euro?

We continue the march towards parity. Do I think we’ll reach parity? No. Sterling though in the interim is giving it a damn good shot to try and get us there. We’ve hit a 31 month low against the single currency. I feel there is still room to move lower in the short-term.

You can view the recent movements in the graph below –

GBPEUR 12082019.JPG

If you are holding EUR at present then look at covering off a large percentage if not all of your exposure at these levels. Might we move a few percentage points lower? Perhaps. However, equally, we might move back up to the 1.11-1.14 levels on the back of any weakening EU data and a strong showing from the UK. I would suggest covering off an amount at these levels will serve you well as a price point to work from. Please contact the trading department to work through technical levels and pricing.

On the data front this week we have inflation data and the ZEW sentiment survey out from Germany. We also have preliminary GDP (QoQ) (Q2) out from Germany and the Eurozone on Wednesday. All these releases have the potential to impact the Euro and in turn move GBP/EUR. If you have a requirement to purchase Euro’s from GBP I would look at implementing some take profit orders and try and take advantage of any breaks in the downward trend. Parity is a possibility for Sterling/Euro so please make sure you have covered off at least part of your exposure in upcoming trade. It gives you some clarity on your position. Please do get in touch with the trading department to discuss your upcoming requirements over the coming months.

If you have any questions please do let me know.

Have a fantastic week.

Written by Liam Alexander

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.