At least Black Friday is now over for another year. Nauseating adverts and queues of people looking for a 48 inch television for a fiver. There’s about as much chance of me standing in line at one of these shops as there is of Jeremy Corbyn having full backing by the Shadow Cabinet.
On the currency markets it is all about Dollar strength at the moment. The market is pricing in close to an 80% probability of a US interest rate hike in December. I do think we’ll see a hike from the Fed although should we have an exceptionally weak Non-Farm Payroll (NFP) figure this Friday that could create uncertainty and suddenly put the US Dollar under pressure. Currently however, the US Dollar is performing well and pushing EUR/USD to eight month lows around 1.0565 and pushing Cable to the downside with a break of the support level of 1.50 this week more than likely. If you are a USD seller against Sterling I would look to implement a market order at 1.50 the figure. Please contact myself or one of the trading team to implement.
If you are a USD buyer please do consider covering off some of your exposure as I think we’ll be under 1.50 in the not too distant future and I expect us to be under 1.50 the figure for the beginning of Q1. We may push back down to 1.45-1.47. How does this impact your costed levels for 2016? Please contact a member of the Aston team to discuss.
This week is going to be more volatile than normal with the European Central Bank (ECB) meeting this Thursday. December could be an historic month in the currency markets with a divergence in monetary policy with the ECB expected to cut rates and a fortnight later the Fed are expected to raise rates. This will be the first time since the 90’s that there has been this divergence. We could see the single currency take a pounding from now till the end of December. EUR/USD is now being called to parity by year end. Thursday’s meeting will have a significant impact on whether parity becomes a reality or not. The ECB is expected to pump a further 600 billion Euros of QE into the markets and push rates further into negative territory. By the end of next year I expect QE to be around the 1 trillion mark. If you have a Euro exposure please do contact a member of the trading prior to Thursday.
Should EUR/USD push under the 1.05 level then this will of course impact on GBP/EUR. If you are a Euro buyer please consider placing market orders at staggered levels to ‘average up’ your rate over the next month should things play out as expected. I would consider anything over 1.40 to be very good value on SPOT and a Forward Contract basis. If you have end of year requirements it may be an idea to get these covered off in the next week or so. As we all know markets have this uncanny habit of doing the opposite to consensus. Should Mario Draghi overwhelm the markets there may be a muted reaction so we could conceivably see the Euro maintain its position if not slightly strengthen. I do think however the Euro will weaken this week.
With regard to Sterling we had the Autumn Statement out last week with George Osborne the beneficiary of a 27 billion improvement in the public finances. This was however more technical financial engineering and forecasting than any concrete numbers. All market talk at present is of divergence and ‘de-coupling’ (I’m sure that’s what Gwyneth Paltrow and Chris Martin did but never mind). The Fed will raise rates in the US although I think the UK is a long way off from raising rates. Until we see growth in the UK economy pick up, wages rise, and the general burden of global debt dissipate then we may be in for low rates for a while yet.
I think Sterling is at the mercy of what the US Dollar does and what the Euro does rather than being in control of its own destiny for the time being.
We have Unemployment data out of Germany on Tuesday followed by inflation data out of the Eurozone on Wednesday. Thursday is the big day for the Eurozone with the ECB interest rate decision followed closely by the monetary policy statement. We round off the first few days of December with the NFP (Non-Farm payroll) figure on Friday.
If you have any questions please do let me know.
Have a great week.
Written by Liam Alexander