GBP/USD had the bounce higher last week I suggested it would after its initial move under 1.60. We moved higher by around 250 pips. That initial move has all but dissipated and the downtrend on GBP/USD has resumed. We’ll be back under the 1.60 handle again shortly. As stated previously, I don’t see any strong fundamentals to suggest Cable is going to have a sustained break higher for the remainder of the year. If you are a USD buyer please consider covering off some of your exposure as I expect the rate to get progressively worse for you over the next two months prior to Christmas. I maintain that we’ll see a stronger dollar over the coming months as I think the US economy is proving more robust than many thought. Indeed, I expect the strength of the US Dollar to shift up a gear. Couple that with the ‘doom and gloom’ in Europe (I wonder how many times I have said that in the past 6 years) and the only winner is going to be the US Dollar this year in the currency markets.

If we look at the continuing problems in the Eurozone some are now calling it a fundamental malaise that may become as bad as 2008. I tend to agree. Does anyone see a return to the happy marriage of nations prior to 2008 in the Eurozone? With Italy pretty much up for sale to the Chinese (Italy is the second biggest target market for the Chinese in Europe this year with $3.43 billion of acquisitions) and Spanish unemployment seemingly never looking likely to fall I really don’t see where any kind of growth/solution is going to come from Europe. If you do, please let me know. To that end, I see a continuing weakening EUR this year. I think we’ll see EUR/USD under 1.25 in the coming weeks. If you are a seller of USD into EUR I would look at placing an order at 1.25 as I think this is a realistic target level to aim for.

Onto our dear GBP/EUR pair. Things never do seem to go the way we hope for this embattled currency pair. It’s like watching your favourite rugby or football team. They start off well, sign a new player, things go great, climb the table, suffer a small setback that seems to culminate in a deep downturn, then come back and push to the highest league position they’ve been in over 2 years only to drop back to mid-table again. So, we’re back to mid-table again. Will we be challenging for a trophy at the end of the season on GBP/EUR or will be fighting relegation? I expect the continuing problems in the Eurozone to compound the misery for the single currency and this should give us a push up towards 1/28/1.29 again. I would look at placing market orders at these levels in the coming days. We’re evidently not near these levels at the moment however it doesn’t take much in the current market climate to shift currencies significantly.

What do we have out in terms of data this week? After little data of any significant note last week we have a packed calendar this week. We have inflation data out in the form of CPI figures from the UK tomorrow and sentiment data from Germany with the release of the ZEW survey. I would expect these two figures to push GBP/EUR higher tomorrow. On Wednesday we have the ECB president Mario Draghi speaking and the question is are we going to fall back into recession and what is the plan to combat this? I believe this press conference will further weaken the EUR. If you are a EUR buyer please contact myself or one of the trading team to discuss implementing market orders to take advantage of the potential volatility. If you are of the same opinion as I then please stagger your orders on GBP/EUR to average up your levels for the year. Later on Wednesday afternoon we have Retail Sales data out from the US and a stronger figure will give further support to the US Dollar.

As stated previously I think GBP/USD will fall further, GBP/EUR will push higher and EUR/USD will push lower. Please make sure you have a strategy in place for the remainder of the year. If you are unsure in how to mitigate your currency risk please contact myself or one of the trading team.

Any questions please drop me a line.

Have a great week and remember the umbrella.

Written by Liam Alexander