ACM UPDATE MONDAY 2ND SEPTEMBER 2019

The summer recess is over and it’s back to the coalface for most. Is this the week when the gloves come off in British politics?

Expect Sterling to be volatile this week. Risk of no deal increases? Short Sterling. Chances of a deal with our European friends being done? Sterling rallies. This is a very simplistic look at things with a broad brushstroke although largely it has held true for the most part this year around Sterling trading.

The specifics of a potential deal with the EU aren’t in the limelight, which is quite staggering so close to October 31st. The focus is on the UK Government and its opponents and whether they can pass legislation to block a ‘No deal’. At present, the Prime Minister, Boris Johnson, is pressing ahead with his strategy. Should Tory MP’s dissent then they may likely be expelled from the party. That would knock out the Government majority and that would open the door, potentially, to another General Election. It’s safe to say no-one wants to go to the polls again. However, we’re in absurd times and I wouldn’t rule anything out. Sterling is going to be vulnerable this week to the threat of an election and yet more political instability.

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

GBPUSD 02092019.JPG

I would look to take advantage of the recent moves on Sterling/Dollar to the downside and cover off some on a SPOT basis. We are now approaching the lower end of the recent trading range.

If you hold US Dollars I would also look at staggering some take profit orders at 1.2050 and 1.20 the figure. Whilst there will be large amounts of resistance at 1.20 there may well be a push through this level this week. Please contact the trading department to implement an order.

In terms of data this week from the US we have ISM Manufacturing and Non-Manufacturing PMI (Aug) that is expected to print 51.0 and 54.1 respectively. Rounding off the week we have Non-farm payrolls (Aug) that is expected to print 159K. Any print above this and we might see some further dollar strength that may nudge Cable (Sterling/Dollar) and EUR/USD lower.

From a Sterling/Euro perspective, we had a move higher towards the end of last week. This was in part to a slight bout of Sterling strength coupled with some weakness in the Euro.  With the UK parliament back in session this week those gains have proven short-lived. Sterling/Euro is on the back foot again this morning.

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

GBPEUR 02092019.JPG

The downside bias on GBP/EUR is likely to resume this week with General Elections and ‘No deal’ risk on the table again. If you have a requirement to purchase EUR from Sterling look at 1.10 as a line in the sand and try and cover off some of your exposure at this level. It isn’t a fantastic level although it is certainly better than the thought of parity!

On the other side of the trade if you hold EUR I would look at covering off a large percentage of holdings at these levels. It might move further in your favour although take advantage of the recent moves. Indeed, we had the release of Manufacturing PMI from the UK this morning that printed 47.4 for August. To put that in perspective, it’s the lowest level since October 2012. In addition to any SPOT trades on EUR/GBP look at implementing some take profit orders to the downside as this week may prove Sterling negative and knock out some of the recent ranges.

Please do get in touch with the trading department as the FX landscape is likely to look significantly different by the end of this week one way or the other.

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.