GBP/USD is battling away however I think the fight will be a futile one over the coming months. I see no real upside in Cable and the consolidative price action over the past week or so points to a downtrend for me. We would have broken resistance levels and pushed higher by now if a substantial change in direction was to occur. Why do I think GBP/USD is set for further pressure to the downside? Simply, the US economy is improving better than expected. Unemployment is down, and the improvement had led to speculation that the Fed would raise interest rates. I think the market has been cautious over the past week or so to not strengthen the US Dollar ahead of the Fed meeting. The Fed announced the end of the QE program ending a 5 year asset purchasing program. The Fed was steady as she goes and we had a spike lower in GBP/USD. I expect a sustained downtrend on GBP/USD to commence now. Over the next few weeks I think we’ll be in for some range bound trading on GBP/USD with a push lower mid-end of November. We’ll be back below 1.58. I still maintain my view that we’ll be at 1.55 within the next 2 months. What level do you think we’ll end the year on? Please send your answers on a postcard to the team at Aston (that’s email in today’s language). There were some calls that we may see a short-term spike on cable with the release of the monetary policy statement however this failed to materialise.
Are you a USD buyer? I would implement a market order should you think we will see a bounce higher. However, I must say, I don’t expect to see any significant moves higher this year on Cable so it may be an idea to look at securing some of your USD at current levels or aim for marginally higher. Please contact myself or one of the trading team to discuss executing a transaction.
USD seller? I would stagger orders at 1.60 the figure and 1.59. I think these are achievable levels over the medium term with 1.58 being toppish.
GBP/EUR? Well, how the EUR still keeps hanging in there is utterly beyond me. We should push higher through 1.28 by end of the year as Draghi will push the single currency lower to stimulate growth. Unemployment across the 18 nation region has barely moved from its high at the outset of the crisis. The weakening global trade being felt has led companies/individuals in the Eurozone to start to fear Round 2 is about to commence. I really don’t see the Eurozone getting back to any kind of prosperity or harmony in the coming years, and perhaps not even till the beginning of 2020. France/Italy/Spain are the countries in focus however the doom and gloom is spreading to the previously unscathed powerhouse and driver of the Eurozone with IFO confidence down in Germany with growth proving pretty much non-existent in the Eurozone. Feeble, was one commentator’s summation. What is the ECB president Draghi to do? I think they are running out of options as he introduced more stimulus last month even before measures announced in June took effect and were implemented. I expect the data from the Eurozone to remain weak and lower than consensus for the most part. This will shift the single currency lower.
Where will GBP/EUR go? I expect a gradual shift higher again with EUR/USD being the driver lower. I would expect EUR/USD to test the 1.25 level and should we break through this support level then well, that opens us up to 1.20 medium term. I actually think 1.20 is a fair level for EUR/USD in the current climate. In 2015 I would say EUR/USD will be lower than this at around 1.15, perhaps pushing 1.10.
I would suggest, and it is only a suggestion, that you contact your trader and discuss implementing market orders on GBP/EUR. If you have a few weeks to play with, this will give you the most upside potential to achieve the high of the market. Please contact us to discuss appropriate and realistic levels to aim for.
Data is second tier this week with nothing significant of note. All eyes/ears were focusing on the FOMC meeting and announcement yesterday. We do however have the German Unemployment rate released today followed by the US GDP figure and German and Eurozone CPI released on Friday rounding off the week.
Should you have any questions whatsoever please let me know.
Enjoy the remainder of the week.
Written by Liam Alexander