ACM UPDATE MONDAY 20TH MAY 2019

A sign that the Europeans are getting bored with the UK and Brexit? We managed to finish last place in the Eurovision song contest. That is quite the achievement. Well done team. The term Eurovision is quite ironic really as the UK doesn’t seem to have one at present.

Sterling/Euro you could argue got even more of kicking than our Eurovision contestant did. We witnessed ten straight days of decline against the single currency. To put that in perspective, it’s the longest losing streak against the Euro since 1999. When the single currency was created. Good times for Sterling at the moment. With a Conservative ‘leadership’ battle on the horizon then one of two options could yet happen – a ‘Hard Brexit’ or Jeremy Corbyn as Prime Minister. If you haven’t guessed yet, that is Sterling negative. Tin hat time.

You can view the movements on Sterling/Euro in the graph below –

GBPEUR 20052019.png

Where does Sterling/Euro go now? At present, I don’t see too much stopping it falling further. Will Theresa May get her deal through Parliament at the fourth attempt in June? Stranger things have happened although I don’t see it. If it doesn’t pass then the default position is the UK leaves the EU without a deal on 31st October. A public vote on the terms of the exit? Perhaps.

Over the summer months and really up to October Sterling moves are going to be dominated by politics. We do have inflation report hearings released from the UK tomorrow. This is followed by inflation data in the form of Consumer Price Index (YoY) (Apr) released on Wednesday. The expected print is 2.2%. From our European neighbours later in the week we have Preliminary Markit Manufacturing PMI (May) with an expected figure of 45.0 out of Germany. This is followed closely by Preliminary Eurozone Market PMI Composite (May) with a print of 51.8.

If you hold any Euros at present I would consider taking advantage of these moves on a SPOT basis back into Sterling. Please contact our trading department for a rate of exchange. There may be further downside so you might want to consider implementing market orders to take advantage of any further Sterling weakness. Please contact the trading department for technical levels to aim for.

On the other side, if you need to purchase EUR from GBP then you need to weigh up whether the rate is going to fall even further. Although the rate isn’t fantastic at present if you can achieve anything around 1.1350/1.14 then I would consider this as a starting point to work from. Again, please contact the trading department for a rate of exchange. Should we see any strengthening in Sterling then you can take advantage of this through market orders to the upside. Please contact me directly to discuss this in more detail.

Sterling/Dollar

Like the Manchester City juggernaut scoring six against Watford in the cup final on Saturday, the US Dollar continues to push Sterling lower and lower. Cable (Sterling/Dollar) has fallen below the February low of 1.2772. Could Sterling trade below 1.25 once Theresa May resigns? Absolutely. From there, does that open the door to hitting the psychological level of 1.20 the figure? It is now a possibility dependent on whom emerges from the Conservative leadership contest as that may spark a general election or the UK falling out of Europe without a deal. Good times.

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

GBPUSD 20052019.png

If you are selling USD/GBP fill you boots at current levels. Might we head lower? Yes. However, I would suggest taking advantage of these recent moves. Should we see any intraday moves lower then try and take advantage of them with some take profit orders at staggered levels to the downside. Please contact the trading department for a rate of exchange. There isn’t much data out of the US this week with the FOMC minutes on Wednesday the only release of note. Trade concerns linger so the dollar may be in consolidatory mode going into the minutes.

If you need to purchase USD from Sterling then it really is a question of giving yourself a price point to work from. Is the rate fantastic at present? No. However, as detailed above, there are risks that we could fall further still. You should consider taking some risk off the table and execute a portion of your exposure on a SPOT contract at current rates. We can then look at implementing market orders to the upside to take advantage of any spikes in the rate. If you let us know your timeline and individual requirements we can put a plan in place to mitigate any downside risks whilst providing some room to take advantage of any upside moves in your favour.

Sterling is likely to be a prisoner to Brexit for most of the summer so please do get in touch to discuss your requirements.

Have a fantastic week.

Written by Liam Alexander

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.