The question of will the Federal Reserve raise rates was answered last week. The question of how high will rates go and how quickly is now occupying minds. I fear this question may be as drawn out as the BBC’s Sport Personality of the year award, or as it seems to annoyingly be known these days as SPOTY. I’d pay triple the licence fee if they didn’t use that term.
What’s happening with GBP/USD? Well, I think there’s as much chance of it going back to 1.60 as there is of snow in London on Christmas Day this year. After the Federal Reserve move last week GBP/USD (Cable) has turned bearish and a further downtrend is expected. Over the festive period there will be less liquidity in the market so moves may be more exaggerated. If you have a requirement to convert US Dollars into Sterling by the end of December I would look at covering off 50% of your exposure on SPOT this week and then utilise market orders over the coming weeks to take advantage of any further downside moves. With USD/GBP at such attractive levels have you considered utilising a Forward Contract? It may be worthwhile locking in a significant amount of your 2016 exposure at current levels. It mitigates some of your risk going into next year.
As I discussed post Fed meeting last week 1.4620 looks likely to be the target level on the downside for GBP/USD. There will of course be levels we need to break through first on route to that rate. If we look at the graph below we’re likely to encounter resistance around 1.4830 and then 1.4720. If you are a USD seller I would aim for 1.49/1.4850 to sell USD over the festive period as realistic levels to execute at.
If you have a requirement to convert GBP into US Dollars I would suggest locking in some now. I thought Cable would be under 1.50 by year end and that looks likely to be correct. I don’t see any immediate upside for GBP/USD and we would need to see a clear break above 1.4950 to think of a change in direction so I think we’ll push lower going into year end. If you are looking at costed levels for 2016 I would suggest looking at the range of 1.40-1.45 as your level. With volatility next year expected to continue on GBP/USD (think potential Brexit) then I don’t see much chance of us looking at 1.55-1.60 as a range. Please get in touch with one of the Aston team to discuss your upcoming requirements and we’ll make sure we put a strategy in place for you.
There isn’t too much data out this week with it being the week a fat man in a red suit flies through the sky on a sleigh pulled by reindeer's although we do have GDP data out of the US and durable goods orders. There isn’t too much to move the markets this week although I do expect a number of positions to start being closed out so this may provide some volatility.
GBP/EUR downtrend has continued with a break of 1.37 the figure. We’ve had a slight bounce in intraday trading however. Are we due a push back to 1.40 or will we push lower? I said at the start of the year I thought we’d finish around 1.32 and whilst that may be slightly out I think we’ll be lower than where we are end of 2015. If we look at the graph below if we see a sustained break of 1.37 the figure to the downside I think that will open the door for a move back to the 1.34s/1.35 level with the next major support level to break at 1.3630 then 1.35. The Eurozone evidently still has a multitude of problems although there is improvement. With the Brexit story in the UK likely to develop more from January I see some political risks that will impact Sterling negatively.
On the flipside if we don’t break 1.37 we may bounce between 1.37 the figure to 1.38 in range bound trading this week. If you are a Euro buyer I would suggest considering locking in some of your exposure this week as I think we’ll be in for a push lower. Please contact myself or one of the trading team to execute a transaction.
I think you’ve heard enough of my ramblings for this year. I wish you and your family a Merry Christmas.
Have a fantastic week.
Written by Liam Alexander