Hope you all had a great weekend. There has been a lot of talking points in the foreign exchange markets of late.
- The last few weeks have been the most volatile I’ve seen in the currency markets since 2008
- Sterling/Dollar. Our forecast at the start of the year was for Cable to reach 1.45. On Friday we broke through 20 month lows at the resistance level of 1.48 the figure. The BoE Governor, Mark Carney, speaking on Thursday, pushed back expectations of a rate rise, saying the Bank of England would consider effects of low inflation from outside Britain, read into that the Eurozone, and also the strength of Sterling. This coupled with an expected interest rate rise by the Federal Reserve in the coming months has dragged Sterling lower against the dollar. In addition, investors are flocking into the dollar as a safe haven providing more fuel for the move lower.
- We have the UK General Election on the 7th May and with any political event there is uncertainty. With the outcome the most unclear for a generation then there will be volatility surrounding Sterling end of April beginning of May. I would say there may well be significant downward pressure on GBP.
Seller of USD
- If you’re a seller of US Dollars it may be worthwhile looking at covering some of your exposure on SPOT or alternatively implementing market orders at various levels to take advantage of any further moves lower.
Buyer of USD
- If you’re a buyer of USD then yes, let’s be honest, it’s not a great time to be buying USD. However, as you’re probably tired of hearing me say, doing nothing is speculating. I would look at covering off some on SPOT to mitigate some of your risk and then discuss levels with one of our trading team on the upside.
- Everyone is now calling this to parity or below. We broke through 1.05 on Friday and this opens the door for a shot at parity. However, I wouldn’t be surprised if we see some bouts of EUR strength this week. The reason? I think the move has been so sharp to the downside we’ll see some respite in upcoming trade this week and see a bounce slightly higher. Does EUR/USD have the potential for a sustained break higher? I doubt it. With the ongoing Greek situation and Dollar strength I don’t see much to suggest that we’ll push much higher in the medium term.
- My forecast at the start of the year was for EUR/USD to trade at 1.07 end of year and I’ll maintain that view. There will of course be moves higher and lower although I think we’ll settle there. Could I be completely wrong? Of course.
Please send me your thoughts on where EUR/USD will end the year at.
- We traded above 1.42 the figure last week. To say this level wasn’t expected is an understatement. Quite incredible really. There may have been some profit taking at this level which resulted in GBP/EUR moving south on Friday and hovering around 1.40.
- Where now? I would expect some range bound trading this week as the moves have been in percentage terms each day rather than just pips. I think some calm, potentially, will return to the markets this week although with Greece still in the headlines and so many other factors that can move currencies it is best to be risk averse with any exposure you have.
What data of note do we have out this week?
- We have the ECB President Mario Draghi speaking on Monday that will provide volatility to EUR crosses.
- On Tuesday we have inflation data out in the form of CPI from the Eurozone followed by the EURO ZEW sentiment survey.
- Wednesday, all attention turns to the UK George Osborne presiding over his 6th budget prior to the UK general election on 7th May.
- We also have the Bank of England Interest decision and minutes. Later in the day UK time we visit our friends across the pond with Janet Yellen taking centre stage with the Fed’s monetary policy statement and press conference. Expect further volatility on GBP/USD. If you have an exposure please get in touch prior to Wednesday to discuss a strategy with us.
That pretty much rounds things off for this week.
As I mentioned earlier, if you have any questions please do let myself or one of the team here at Aston know.
Have a great week
Written by Liam Alexander