Chances of a Northern Hemisphere team winning the Rugby World Cup? After the performances of South Africa, Australia and New Zealand over the weekend I’d say about as much chance as Vladimir Putin and Barack Obama playing a friendly game of Scrabble on a joint family camping holiday in France.
The US NFP (Non-Farm Payroll) figure disappointed to the downside on Friday with 142,000 jobs added compared with consensus estimates of 206,000. This disappointing figure has of course led to investor anxiety coupled with global concerns and ongoing erratic movements in stock markets (think China, Glencore etc). So, the NFP number pretty much ends any talk of an interest rate rise in the US in 2015. Poor numbers mean a weak US Dollar right and a rebound on GBP/USD? Possibly, although I’d offer a counter argument. Do I think we’ll see a short-term bounce in Cable? Yes. Probably up to 1.53 or so. Do I think GBP/USD will continue higher? Nope. I expect the downtrend to resume and then continue.
Here’s why - We have the Bank of England meeting this week on Thursday October 8th. We also have the FOMC minutes out of the US. Does the now likely push back in a US interest rate rise to 2016 push back the likelihood of a UK interest rate rise? Yep. Is data out of the UK firing on all cylinders at the moment? Nope. Therefore I’d expect to see a push higher followed by a retracement to the downside with the target level being 1.5108 (Last weeks and May 5th low). Couple this with the fact that we all know the US Dollar is a safe haven currency. It is also safe haven for treasuries; UK Gilts lack this. So, if we take the fact that the chances of rate hikes are diminishing then this will heighten global growth concerns and this will in turn lead to risk aversion (everyone will pile back into the US Dollar) then Sterling and other risk currencies are likely to take a punch to the head akin to Muhammed Ali on a bantamweight.
Consequently, if you are US Dollar buyer I’d consider covering off some of your exposure on a SPOT basis prior to Thursday. US Dollar seller? Stagger orders to the downside to take advantage of any pullback over the coming weeks. Please contact myself or one of the trading team to discuss.
My end of year forecast of 1.32 is getting closer. We’ve had a downside move to the mid 1.34’s last week. I expect us to settle around the mid-1.35s for a while then we’ll see a further push lower. The Euro, as has been the case for numerous years, has been robust. Annoyingly so at times. If you are a Euro buyer and you have a 3 month exposure to the end of the year I would consider locking in more of your requirement on a Forward Contract. This will mitigate your risk and give you one less headache in Q4. Might GBP/EUR go up? Yes. Might it go below 1.30? Quite possibly. What does this shift lower do to your bottom line? If we see EUR/USD push through 1.15 the figure and settle above that level then that is a possibility. Please contact myself or one of the trading team to discuss a strategy for the next few months. We have Draghi speaking tomorrow that will likely shift the single currency one way or another so please do have a plan in place should you have a requirement this week.
If you have any questions on the above or a question on a particular currency pair or requirement please do let me know.
Have a great week.
Written by Liam Alexander