The Non-Farm Payroll Figure out of the US on Friday was absurdly positive. Chances now of GBP/USD pushing back to 1.55/1.60 by year end? About as likely as Kim Jong-Un deciding North Korea should become a democratic society and everyone should have a Facebook account.
Will we be under 1.50 again soon? Yep. Sterling fell on Thursday after the meeting minutes, Quarterly inflation Report and Carney’s press conference were more dovish than market expectations. The BoE revised its outlook on GDP growth and inflation downwards suggesting there’s no rush to hike interest rates in the UK for a while yet. The fall on Cable continued on Friday at a more dramatic pace after the release of the aforementioned Non-Farm Payroll report. The US economy added 271,000 new jobs in October against expectations of 180,000 giving a further boost to the already strengthening US Dollar. Indeed, the US unemployment rate fell to 5%, its lowest level in seven years. Wages also rose beyond expected levels. The positivity of these figures give support to Dollar bulls and very much brings the question of whether the Federal Reserve will raise rates at December’s meeting into sharp focus. If interest rates are raised expect GBP/USD to be well below 1.50 at the start of 2016. Have you a strategy in place to mitigate this risk if this does transpire? Please contact a member of the Aston team to discuss your individual requirements for the rest of 2015 and Q1 2016.
I expect GBP/USD to drift slightly lower this week although I think the pair will trade in a fairly tight range due to a lack of data until the middle and end of the week. We have the BoE Governor, Mark Carney speaking on Wednesday so should he maintain a dovish perspective we may see GBP/USD push back to the 1.49s. On Friday we have US retail Sales MoM (Oct) released that if stronger than expected will further boost the performance of the US Dollar.
Indeed, we’re coming up to the festive season when we’ll have the usual TV footage of people trampling over each other in the US to buy a toaster or whatever is the 2015 Tamagotchi Pokemon equivalent. We can probably expect Retail Sales to prove robust for the next 3 months. I’d expect the US Dollar to be the front and centre story in the currency markets for the rest of 2015. If you are a US Dollar seller I would look to stagger your orders at 1.5050/1.50 and 1.4950 this week to execute at. Please contact myself or a member of the trading team to implement these.
The single currency continued its recent slide due to the growing expectation that the ECB will likely loosen monetary policy further. If we look at EUR/USD it hit a 3 month low around 1.0840 on Wednesday before being sent tumbling downwards quicker than a Premiership footballer. By end of play Friday EUR/USD was under 1.08. What does this mean for GBP/EUR? We’re flirting with the 1.40 level and the question now is will we push higher still or is this a temporary level? I’d suggest the move on EUR/USD is oversold and overdone at the moment and we’ll see a push back higher probably to around 1.09/1.10 that will give the Euro some respite and drive GBP/EUR back under 1.39 possibly back into the 1.38s. If you are a Euro buyer I’d not get too greedy and hold out for 1.40 as we all know that GBP/EUR has a tendency historically to flatter to deceive. If you can achieve current levels I would suggest covering off a large part of your remaining 2015 exposure at current levels on SPOT. Please contact myself or a member of the Aston team to discuss.
We have the ECB president Mario Draghi speaking on Wednesday followed by GDP figures (QoQ) and (YoY) (Q3) released from the Eurozone on Friday that will provide some further volatility. The next few weeks are going to be interesting to see how the end of 2015 is going to look and where the major currency pairs are going to be trading at.
As always, please make sure you have a strategy in place with a mix of market orders, SPOT contracts and Forward contracts to mitigate your risk effectively for the remainder of the year and going into Q1 2016.
If you have any questions please let me know.
Have a fantastic week.
Written by Liam Alexander