It was a fairly quiet first week of 2016 so I'm thankful we could ease back into things. There were only growing worries on the Chinese slowdown, oil price fluctuations exacerbated by Middle East tensions, Saudi Arabia planning an IPO of its state oil producer Aramco, the Nikkei, Dax, FTSE 100 and Dow Jones plummeting, Emerging market currencies under pressure, Non-Farm payroll figures coming in better than expected that gives weight to the Federal Reserve potentially raising interest rates in March, George Osborne intimating that the UK's finances are far from riding on a crest of a wave and a potential 'Brexit' coming into sharper focus. On a positive note, I haven't broken my dry January (yet).
The scene is set for a turbulent year in the financial markets. We all know markets hate uncertainty although we'd better get used to it as the 'new normal' as we're going to get a ton of it.
GBP/USD fell to five year lows last week and as I said in my previous report I expect Cable to continue the downtrend. I expect a break of 1.40 the figure at some point. With UK inflation nowhere near the target figure of 2% and global markets going up and down more often than a see-saw (I wonder if 'millennials' even know what one is) then expectations of a UK rate rise will be pushed back further. Some analysts are now predicting that we won't see a rate rise in the UK in 2016 at all.
If you are a USD buyer what do you do? I do think we'll push lower and as I stated last week I can see us testing 2009 lows of 1.35/1.36 so you may want to implement market orders with our trading team to take advantage of any reversal of the move to the downside on intraday spikes. If you are thinking GBP/USD will go back to 1.50/1.55 then you may be waiting a while. My suggestion would be to consider covering off some of your exposure on SPOT and Market orders whilst leaving yourself some upside should the market move back there and then lock in a forward contract above 1.50 the figure. Please contact myself or one of the trading team to discuss appropriate levels to execute market orders at.
USD seller? Fill your boots. We're at the best level in 5 years. Not much more to say on it than that. Please contact myself or one of the Aston trading team to execute your exposure on a SPOT transaction.
GBP/EUR? Well, my forecast of being in the 1.32’s by the end of 2015 was 6 working days out so not too far off compared with the majority of Banks calling 1.40 and above. We traded in the low 1.32s earlier today and we’ve since had a bounce upwards. Where do I think GBP/EUR will go? I think 1.30 will be the lower end of the range although if we do break through 1.30 then it may be a quick shift down to 1.28 or so. I think, however, that we’ll stay above 1.30 for a while and we’ll bounce around from 1.33-1.36 for a while. If you are a EUR buyer please contact myself or one of the trading team and we’ll work out an individual strategy for you as I expect a lot of volatility on Sterling this year.
EUR seller? Very similar to those selling dollars. Fill your boots. Contact myself or one of the trading team to execute a SPOT transaction. Think there’s more to go in the downside move? You can implement market orders to take advantage of any further movements lower.
We don’t have a huge amount out this week although with global events and China dominating markets expect continued volatility. We have the BoE Governor Mark Carney speaking on Wednesday ahead of the Bank of England interest rate decision on Wednesday which will be a non-event although the monetary policy summary should provide us with some further insight into the MPC’s thinking. Following this we have the ECB Monetary policy meeting accounts with Retail Sales out of the US rounding off the week.
If you have any questions please let me know.
Have a great week.
Written by Liam Alexander