ACM Update Monday 17th February 2020

Storm Dennis has put the wind in the sails of Sterling. When or why Storm Dennis replaced Storm Ciara I’m not exactly sure. In any case, Sterling has rallied higher.

Why has Sterling/Euro broke through that recent fabled 1.20 level? We have had some ‘decent’ UK data in the form of a marginally better than consensus print from UK GDP and a slight rebound in UK Industrial and Manufacturing figures. Couple this with the Euro being knocked around like a bantamweight against a Tyson Fury or Deontay Wilder. Indeed, the Euro has been given a bloody nose from both Sterling and the US Dollar. The Euro weakness can mainly be attributed to weakening economic growth in the Eurozone. Indeed, the coronavirus outbreak in China has impacted the German economy that is export driven. In addition, the preliminary German GDP print showed that the economy stagnated in Q4. Overall, Eurozone GDP growth is at its weakest level since 2014.

You can view the recent movements on GBP/EUR in the graph below –

 Will Sterling/Euro climb higher still or will we see a retracement lower from recent highs? This week on the data front we have the UK ILO Unemployment rate (3M) (Dec) released with an expected print of 3.8%.Following this we have the release of the German ZEW survey (Feb) with an estimated print of 20.4. On Wednesday we have inflation data out with the release of CPI (YoY) (Jan) with a figure of 1.4% expected. This remains unchanged from the previous release. On Thursday the release of the ECB Monetary policy meeting accounts gives an overview of financial market, economic and monetary developments.

If you have a requirement to purchase EUR from GBP lock in some of the recent gains. Please contact one of the trading department for a SPOT price. As I said at the start of the year, I expect Sterling/Euro to push upwards this year. There will of course be some dips in GBP/EUR due to UK/EU trade negotiations although I do expect the pair to trend higher. Consider implementing some take profit orders on a staggered basis to the upside. Again, please contact the trading department to discuss realistic levels to aim for.

Selling EUR into GBP? If requirements aren’t immediate then look at placing orders under 1.20 the figure to try and take advantage of any weakening in Sterling. There may be a pull back after the recent climb to the upside so make sure you’ve spoken with one of the team to put a plan in place.

On Cable (Sterling/Dollar) we’re back above 1.30 the figure.How long will we last above 1.30 though? We’re looking for some clues on direction at present. For now, I think there is enough support around 1.30 to hold for the time being with a slight bias to the upside.

You can view the recent moves in the graph below –

 

It is a US holiday today so we have a shortened trading week. We have the FOMC minutes released on Wednesday although I don’t expect many surprises. I’d expect the US Dollar to maintain its recent strength after economic data continues to outperform relative to expectations. Couple this with a flight to the US Dollar to take shelter from the Coronavirus and I’d expect the Dollar to remain the upside bias against sentiment driven currencies like the Aussie Dollar and Kiwi Dollar.

If you are purchasing US Dollars I would look at these levels as attractive. Please contact the trading department for a rate of exchange on GBP/USD. There might be further to run on this short-term although if we have a favourable US Dollar this week then Sterling/Dollar may give up its recent gains.

This week may push GBP/EUR and GBP/USD out of recent ranges so please make sure you have had a chat with a member of Aston to discuss your upcoming requirements.

Have a fantastic week.

 

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.