So here it is, December, Merry Christmas, everybody’s having fun. Call me cynical but there’s been Christmas trees and lights in shops since the beginning of November. With the import of ‘Black Friday’ and ‘Cyber Monday’ meaning people are queueing at Asda at 6am to purchase a television well, it’s slowly pushing me over the edge. Ho ho ho. Give me a couple of weeks and I’ll be into the full swing of festive cheer. Until then, focus is on currencies and Sterling in particular. Will Sterling be getting fat over Christmas and opening lots of cherished presents? Nope, it won’t. It’ll be lucky if it gets a Christmas card. I think we’re in for a sharp fall on GBP/USD and I think that will start as soon as tomorrow. Why? George Osborne, the Chancellor, will give his annual autumn statement. I believe the economy is going in the right direction, we’re much further along the road to recovery than the Eurozone. That being said, the figures don’t lie and George Osborne will have to play a blinder and offer the market some solid news that the country’s deficit is under the control. No matter how well he speaks tomorrow Sterling will come off. I think it is a question of by how much rather than if.
The figures will show that the Government will have to borrow as much as £75bn more than intended over the next five years. Indeed, we may have some bleak fiscal forecasts from the OBR (Office of Budget responsibility). With declining revenues from oil sales due to the plunging oil price, stamp duty takings down and income tax down George Osborne may be forced to say that the timeframe to bring the deficit down has increased. Even though there has been a rise in employment over the past 12 months it has been centred on the lower paid end of the market so this hasn’t fed into the Government’s coffers. That means more austerity for an extended period. You don’t have to be a genius to determine that isn’t what the public and market wants to hear. Couple this with borrowing costs expected to be revised upwards by the OBR, a slowing housing market then I can only see Sterling dropping off tomorrow.
What level will GBP/USD fall to? I probably have a more aggressive view than most. I believe we could be under 1.55 by the end of the week. Tomorrow will be key for Sterling as discussed above. Add in the NFP figure (Non-farm payrolls) on Friday and I expect a double whammy on GBP/USD pushing us down. I think the NFP figure will come in above expectations. Are you a USD buyer and have conversions to do in December? Please get in touch with myself or one of the trading team to discuss securing some, if not all of your exposure. Disagree with my view on GBP/USD? Please look at implementing a market order to the upside on Cable. I would suggest aiming for a level of 1.57 going into year end.
I have called GBP/USD correctly this year all the way down from 1.72 to current levels. I expect a further fall to below 1.55. I may of course be wrong, so don’t quote me on it. As suggested all year I think USD strength is going to continue into Q1 next year. If you are sitting on the fence hoping it may go up then by doing nothing you are speculating. Have a strategy in place and if you need to cover off USD on Spot please get in touch. Doing nothing is speculating.
We are on hand to discuss your requirements. Ultimately, it is your decision when to execute a transaction though. Please contact me to discuss any requirements you may have.
GBP/EUR? Rather dull at the moment. Range bound trading has been occurring for the past couple of weeks with a few intraday spikes and dips with no clear break to the upside materialising. I do expect GBP/EUR to push higher although as usual it never moves quickly. On Thursday we have Mario Draghi, the ECB president, speaking. I’m not sure how many more times he can say “we’ll do whatever we can”. Full blown QE is on the cards although as stated last week there will be and there is resistance to such a move from the German Bundesbank. Indeed, it is the southern European countries that are crying out for stimulus. With further years of austerity expected and divergent policies from the member states coupled with political turmoil and resistance in the majority of countries I don’t see any kind of solution that will better productivity and growth in the Eurozone over the coming months/year and perhaps not for the next 5 years. Will the Euro ‘project’ ever succeed or was it destined to prove an unworkable alliance? A conversation for another day perhaps.
There is quite a lot of data out in the coming days so please do get in touch with your trader or myself to discuss your upcoming requirements.
Would you like to see any particular currencies covered in depth? Perhaps you have a requirement for NGN/AUD/CHF etc. If you would like me to cover a particular currency please let me know.
Have a great week
Written by Liam Alexander