ACM UPDATE MONDAY 7TH OCTOBER 2019

Is this, finally, the week where we get some clarity around ‘Brexit’? Apparently so. The EU will let us know on their deal decision by the end of the week. Chances of the EU ‘compromising’ to the point where a deal is agreed? Slim is my thinking. There’s more chance of Manchester United winning the league this year. Do we then go round and round the mulberry bush yet again? Quite likely. Back to Parliament we go. Joy.

I would expect Sterling to come under further pressure over the upcoming weeks. This will purely be down to one thing; yep, you guessed it, uncertainty. Is it tin hat time? Perhaps not quite yet. However, volatility is certainly going to increase. Please make sure you’re in touch with one of the trading team to discuss your individual requirements.

If you are holding US Dollars and looking to move back into Sterling I would consider staggering some take profit orders over the coming weeks. Whilst rates on a SPOT basis are attractive and you’re under 1.25 the figure I think there may some further room to run on the downside.

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

GBPUSD 07102019.JPG

On Tuesday we have the Bank of England Governor, Mark Carney, speaking. Interest rates will again be a topic of discussion. Is an interest rate cut on the way for the UK? Its’s more likely than not now. Yes, Brexit is all pervasive although the global economy isn’t exactly firing on all cylinders. Look at the well documented trade wars, weak Eurozone growth and a US economy that isn’t performing as well as it once did. That being said, the NFP (Non-Farm payroll) figure released on Friday printed +136K.

If we look at UK performance I’d expect annual growth of around 1% this year. Inflation is printing 1.7% so that’s below the Bank of England’s target rate of 2%. Guess what? The monetary policy response is to normally cut rates. The only reasons not to cut rates? Wage growth of circa 4% and then of course Brexit – no-one still has any idea on how things are going to play out so the Bank of England may go into ‘wait and see’ mode. I think we’ll have a rate cut from 0.75% although we’ll see if that plays out.

On Wednesday we have the Federal Reserve Chairperson Powell speaking and also the FOMC minutes released. We also have inflation data in the form of CPI (Sep) from the US and rounding off the week we have Preliminary Michigan Consumer Sentiment Index (Oct).

I expect Sterling/Dollar to move slightly lower although I’d expect the next move to be relatively range bound from 1.21-1.23 over this week. If you need to purchase some US Dollars I would look at executing a portion of your exposure at current levels. It gives you a line in the sand and a price point to work form. Please contact the trading department and they can provide you with SPOT rates and technical levels to aim for.

On the Sterling/Euro front, we are back to floating around in a jacuzzi with zero direction. We’re currently trading above 1.12 the figure although there isn’t any clear trend in either direction. Guess what? Brexit is likely to be the biggest driver if we break higher and potentially challenge 1.20 the figure again or if we hurtle towards parity. I’m sure you’re as bored of hearing this as I am of saying it, but please have a plan in place and mitigate some of your risk in the up to the next few weeks. If you think GBP/EUR is going significantly higher or significantly lower isn’t really relevant. Speak with one of the team so you can capture as much of the upside whilst protecting your downside risk.

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

GBPEUR 07102019.JPG

We are fairly light on the data front from the Eurozone with the release of the ECB’s Monetary Policy Meeting Accounts that give an overview of policy deliberations the only release of note.

If anyone thinks if we get a ‘deal’ or a ‘no deal’ that suddenly ‘Brexit’ will be out of the headlines is going to be sorely disappointed. Unfortunately this is the first act and we’re nowhere near the interval yet. If Sterling rallies higher or falls off a cliff we’re going to see the real moves after the 31st October. ‘Brexit’ is going to be an event on the 31st, if we don’t get an extension. The real challenges start after that.

Please speak with one of the team and work out your requirements for the rest of the year.

Any questions please let me know.

Have a fantastic week.

Written by Liam Alexander

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written by

Liam Alexander

Liam Alexander is the CCO at Aston Currency Management.