What does Dollar strength and reduced expectations of an interest rate rise from the Bank of England mean? Yep, you’ve guessed it. Further downside risk for GBP/USD. I said we’d be around 1.57 by end of year and I am going to maintain that forecast. However, I do think short-term we’ll see a further drop on GBP/USD and we’ll likely break the 1.55 support level. What does that mean for you? If you are ‘costed’ at 1.55 then you may want to lock in the remainder of your 2014 and potentially some of your Q1 ’15 exposure on Spot or a 2 month Forward contract. Why? Protection. You might think it will go higher, lower, or sideways however the fact remains if you don’t do anything you are speculating where currencies are going to go. Name of the game is mitigating your currency risk. If you have some outstanding USD to purchase please contact myself or one of the trading team. We can discuss executing the remainder of your exposure or implementing a strategy over the next month or so.

Dollar strength has been the story for the past 6 months and I think, as mentioned numerous times before, that it is set to continue into Q1’15. EUR/USD has broken the 1.25 support level on a few occasions and I expect 1.20 to come into focus in the coming months. End of Q1 I expect EUR/USD around 1.15. If you are beginning to plan budgets/forecasts for next year now may be a pertinent time to discuss your Forex strategy with us for the next 12 months.

What data do we have out this week? This morning we had Core CPI out from the UK that disappointed to the downside coming in at 1.5% against consensus of 1.6%. CPI (YoY) (Oct) came in on consensus at 1.3%. What has been the reaction of this on Sterling this morning? Not a whole lot. We’ve dropped off slightly on GBP/EUR and GBP/USD although nothing of note. Tomorrow attention turns to the Bank of England and as always the interest rate decision is a non-event. All ears will be on what the Governor of the Bank of England, Mark Carney has to say. Sterling has suffered in recent days and with talk of a deep downturn in the Eurozone surfacing again then that could impact the UK. Any kind of recovery seems a long way off for the Eurozone. Risks remain and I’d argue that they’ll only increase in the coming year rather than decrease. Sterling to me is a stable currency although as always with Foreign Exchange it takes two currencies to determine the direction of a currency pair. On Wednesday early evening UK time we go across the pond to the FOMC minutes. Should these prove positive then expect further US Dollar strength. I would expect further USD strength in the coming days. I have banged on about it all year long and I’m sure some of you are bored hearing it although please do consider your GBP/USD exposure as we are now reaching a further psychological level of 1.55. Should we break that support level then that opens us up to 1.50. I think we all forget sometimes that it is quite conceivable we can go back below that again. We’ve been in a nice range of around 1.55-1.70 in the recent past. Should we fall below 1.50 what does that do to your profits? Please email me to discuss how to manage your forex exposure for the remainder of the year and Q1 next year.

On Friday we have the dynamic sounding ECB president Draghi speaking. It will be more of the same. “We will do whatever is necessary” blah blah blah. Tensions are bubbling away as Draghi and others would like to go for full blown QE and inject some cash into the system whilst some of the northern European countries are against it. Step forward Germany and the Bundesbank being the main opposition. It is pretty obvious to most simply reading the papers and not having access to all the details that Europe is on the brink of another recession, low growth (if any) and deflation across the entire continent. Indeed, Germany, the economic powerhouse of the Eurozone isn’t too far away from contraction itself. The ECB have normally gone for a unanimous vote and not having Germany fully on board with their decision to push ahead with full blown QE will cause immense division and problems. Over the coming months I can see tempers fraying further. What will that do to the single currency? Yup, will add more pressure and push the single currency lower. I do expect EUR/USD to come down considerably. This may be a slightly aggressive and not commonly held view although in my humble opinion, I don’t see any upside on EUR/USD and I expect it to fall further. What’s your thoughts? Where do you think EUR/USD will trade at come the end of Q1? Send me an email.

Should you have an exposure on GBP/USD and GBP/EUR and would like to place a market order please let me know. Market orders give you upside potential so you can take advantage of any spikes on an intraday basis. With GBP/EUR and GBP/USD coming off in recent trade you may wish to implement an order. Please contact me to discuss. Seller of USD and EUR against GBP? Well, if you’re selling USD you’re significantly better off than 3 months ago. If you have USD or EUR to sell I would send one of our trading team an email to cover off your exposure on a SPOT basis.

Should you have any questions please do let me know.

Enjoy the miserable weather and have a good week.

Written by Liam Alexander