ACM Update Monday 4th April 2020

Sterling/Dollar may be on the back foot this week. Much like the idiots congregating in the park being ushered away by the police. At times like these you can’t legislate for stupidity unfortunately.

Sterling/Dollar was staging a modest recovery last week although that was wiped out Thursday and Friday. The NFP (Non-Farm payroll) figure out of the US was nothing short of horrendous with a print of -701K jobs. This was seven times worse than expected by analysts. I’d expect the numbers to deteriorate further in the US (and therefore filter through to other economies) which would imply a further flight to the relative safe haven status of the Dollar for investors. Sterling/Dollar finished last week below 1.23 the figure.

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

 

Will we have a recovery in price this week? Unlikely. The UK will be entering, according to various experts and news reports, the peak of the coronavirus in the coming weeks. Couple this with the UK Prime Minister,Boris Johnson, being in hospital and this will contribute to a negative bias around GBP. We may see some spikes on an intraday basis although I don’t expect any significant push higher short-term. Towards the end of Q2? Yes, I expect GBP/USD higher.

If you are holding US Dollars look at securing GBP under the 1.25 figure. With markets being short-term and reacting wildly to any news flow the landscape can change extremely quickly. Cover off some of your Dollars on a SPOT basis and we can also implement staggered take profit orders to the downside to take advantage of any significant moves in your favour in the coming weeks. Please contact our trading department to discuss technical levels.

In terms of Sterling/Euro we may give up the recent gains.We have pushed back to the mid-1.13s although I think we are running out of steam.

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

There seems to be some glimmer of light in Europe around coronavirus and the UK will be heading into the worst of it shortly. This should push GBP/EUR lower. We have also kicked the can down the road on the UK leaving the EU and that will need to be sorted out sooner or later. Some simple type trade agreement will need to be cobbled together and this will weigh on GBP towards the end of the year. In the interim, I would expect GBP/EUR to potentially move lower and test 1.10 again.

If you need to move EUR into GBP please get in touch with a member of the Aston team and they will be on hand to discuss the timing and execution of the trade with you. If you need to purchase EUR from GBP look at a SPOT trade for a percentage of your requirements. We can always implement take profit orders to the upside for the remainder should we see some movement in that direction - although I think that move will be challenging short-term.

There will be further significant shocks to come in the currency markets as this is the initial reaction stage. Globally, there will be a recession. That’s inevitable. Countries economies are suffering now although the true impact of the coronavirus won’t be fully realised for a few months yet.

Managing your currency exposure effectively now will give you one less thing to worry about down the line. If we can help alleviate some of your concerns around your FX positions please do get in touch.

I hope you enjoy your state sanctioned exercise today and don’t eat too many Jaffa cakes.

If you have any questions please do get in touch with the team at Aston.

Best wishes and stay safe.

 

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.