ACM Update Monday 6th January 2020

Happy New decade. Now the party hats have been put away for another year the New Year’s resolutions will take hold. Going to the gym every day, climbing Everest etc. I have no doubt all the resolutions will still be in place end of 2020. Sure.

Now attention has turned from festivities back to work what will this week hold for the currency markets? With ongoing and potentially serious ramifications globally, stemming from the escalating Iran/US/Middle East tensions, currencies and commodities will be reactive to any changes in the narrative.

You can view the movements over the past two weeks on Sterling/Dollar (Cable) on the graph below –

We reached a low of 1.2908 on December 23rd whilst the high in December was 1.3515. Should we stay above 1.29 this week I expect Sterling/Dollar to nudge higher in January. I expect some wind in the sails for Sterling this year after a strong Conservative majority that ‘should’ lead to some stability for the UK in 2020.

If you have a requirement to purchase USD from Sterling in Q1 please get in contact with the trading department to discuss a technical outlook for GBP/USD over the next 3 months. I do expect a climb higher so it may be worthwhile implementing some take profit orders to the upside on a Forward Contract basis at staggered levels to take advantage of moves higher.

We are fairly light in terms of economic data this week with the exception of US ISM Non-Manufacturing PMI (Dec) with an expected print of 54.5 against a previous print of 53.9. The main release for the dollar this week is Non-Farm Payrolls (Dec) with an expected print of 172K against a previous print of 266K. In addition to this release we have Average Hourly earnings(YoY) (Dec) that is expected unchanged at 3.1%.

If you are looking at selling US Dollars back to Sterling at the beginning of this year consider trading some on a SPOT basis at current levels. We’ve come off substantially from the high in December (1.3515) so it would be worthwhile taking advantage of this move. Might there be more downside? Potentially. However, as detailed above, I expect Sterling/Dollar to trade higher this year. Take some risk off the table with a SPOT contract then you at least have a rate to work from. You can then implement orders to the downside should we see a move lower. Please contact the trading department to discuss your individual requirements.

Sterling/Euro

On Sterling/Euro we have retreated from highs of just over 1.20 the figure after the General Election back into the low 1.17’s. You can view the movements on Sterling/Euro on the graph below –

Whilst the word ‘Brexit’ may be used less this year in the media the UK still has to formally leave the EU. All is fairly calm at present although once the UK leaves the EU on 31st January future relationship negotiations will start in earnest. How these negotiations play out will play a big part in the direction of Sterling/Euro this year. I don’t expect a lot of movement in the first full week back in the saddle although there is a small bias to the upside. The only economic release of interest from a Eurozone perspective is inflation data in the form of Preliminary CPI (YoY)(Dec) that is expected to be unchanged at 1.3%.

If you have a requirement to purchase Euro from Sterling I would cover off a portion on a SPOT basis this week. It gives you a price point to work from. It was only August last year when we were trading just under 1.0650 on GBP/EUR. Once you have executed a SPOT trade I would consider implementing orders to the upside at 50 bps intervals to take advantage of potential moves to the upside. I expect Sterling/Euro to climb back above 1.20 this year once the initial unease around trade negotiations dissipates. The risk for Sterling/Euro short term is if we have investors depart EM (Emerging market) currencies due to the Iran/US conflict and whilst the Dollar will outperform investors may also utilise the Euro as a short-term safe haven. This will of course push Sterling/Euro lower. If you are selling EUR back to GBP consider some short-term take profit orders to the downside. On a medium term perspective I expect Sterling/Euro this year to climb above 1.2137 (highest level seen since shortly after the 2016 UK referendum).

This week I don’t expect any significant moves in either direction whilst the markets find their feet for 2020.

Please do get in touch to speak with one of the team to discuss your individual currency requirements. By having a plan in place it will help you mitigate the upcoming currency risks. One thing we can certainly be sure of is that there will be many bumps in the road for Sterling, Euro and the Dollar this year.

Have a fantastic first week and any questions please do let me know.

Written by Liam Alexander

 

written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.