The political wrangling and uncertainty is over. A majority Conservative Government is in power if you haven’t watched the news for the past 4 days. Of course, there will be concerns over an EU referendum etc although I think we can park the political situation for now. Let’s look at what is in front of us market wise rather than reflecting on what has been.

GBP/USD

Our forecast of 1.45 on USD/GBP was met this year. Post-election we now need to look at the next 3 months and where we will be in the run up to Q4. GBP/USD has had a substantial jump on the positivity of the election and we’re up at 2015 highs. Will it stay there? Will it be back to 1.60 or back below 1.50?

  • 1 month forecast – 1.53 – 1.55
  • 3 month forecast – 1.50 – 1.52

The reason for this forecast is I don’t think we’ve seen the end of dollar strength. Was it not long ago everyone was calling EUR/USD at parity? We’re now up over 1.12 on EUR/USD. If EUR/USD drives back below 1.10 expect a pullback on Cable. Once the political parties get back to what they do best, arguing, then I think we’ll see some Sterling weakness. Of course, there are those that are calling cable back to 1.60 and yes it might have a go although I think that chance is limited. It is just my opinion but if you can secure above 1.55 I’d lock that level in.

GBP/EUR

Ah, the wonderful Sterling/Euro cross. For years it was dull and it has now become quite hard to predict its short-term direction. Will it go higher than previous levels of 1.42? I doubt it. I think there is as much chance of Karl Lagerfeld dressing in brightly coloured clothes.

  • 1 month forecast – 1.36 - 1.38
  • 3 month forecast – 1.34 – 1.36

The reason for this forecast is not that I think EUR is suddenly going to gain momentum but more of a pullback on the trade after testing 1.40 the figure again. I also think the UK won’t be a one way bet back to prosperity so I think we’ll have GBP come under some pressure once the dust settles after the election. If you have a EUR requirement I would suggest implementing market orders around 1.39/1.3950 and 1.40 to the upside over the next week or so. I think we will hit these levels short-term with the last of political goodwill giving Sterling a further shift.

Data this week

There is a lot of data out this week with the main day for releases being tomorrow. If you have a requirement please get in touch.  We have GDP out of Germany first thing tomorrow then we have BoE Governor Mark Carney speaking and the UK inflation report. Following this we have GDP out of the Eurozone and then Retail Sales out of the US in the afternoon. There will be volatility tomorrow and we’ve had quite a lot of that recently.  

Of course, the above is open to debate. Please do get in touch via email or telephone with myself or one of the trading team and we can discuss a strategy that best suits your individual requirements.

Have a great week.

Written by Liam Alexander