So David Cameron got the deal he wanted and a referendum on EU membership has been set for June. I have a feeling the incessant “will we” “won’t we” chat in the run up to June 23rd will be about as exciting as sitting in the coffee shop at John Lewis on a Sunday.
Sterling is up, down, left, right, but mostly down. It's about as directionless as Manchester United or the Conservative Cabinet on EU membership at present. We all knew the ‘Brexit’ conversation was going to become front page news at some point and that time has now arrived. David Cameron got the deal he wanted and The City in particular breathed a sigh of relief. The agreement late on Friday produced a surge in Sterling and moved it higher against both the Euro and US Dollar. Of course, this was short lived. Once everyone finished thinking “Great, we have the deal we wanted” and came back to reality with the realisation that a ‘Brexit’ is going to create a huge deal of uncertainty over the coming months, Sterling tumbled Monday morning. Indeed, with the enigma that is Boris Johnson throwing his not inconsiderable weight behind the campaign to leave then expect increased volatility throughout the end of Q1 and into Q2.
What does all this news do to the trend in Sterling? Not a lot for me. I’ve said for the past 12 months I don’t think Sterling has much behind it and the news over the weekend has only reinforced my view. I think we’ll be below 1.40 very soon on GBP/USD and we’ll be targeting 1.25 to the downside on GBP/EUR shortly.
If you look at the graphs below on GBP/USD and GBP/EUR you can see we have some intraday spikes to the upside and we dallied with 1.45 the figure on Cable (GBP/USD) a few times. We failed to sustain the break higher and we’re now testing under 1.42 the figure on GBP/USD. If you are a USD buyer it pains me to say it although you may be best looking to cover off some of your USD from GBP at current levels. In the not too distant future we’ll be trading in the 1.38s/1.39s. What will another couple of percentage points to the downside do to your bottom line? Please contact myself or one of the trading team to discuss a SPOT price. If you are of the opinion that GBP/USD will break higher and the headlines will turn positive on Sterling and the UK then please contact one of the Aston team and discuss appropriate levels to aim for to the upside.
Are you a US Dollar seller? Same suggestion as the past two weeks then. Yep, you guessed it. Fill your boots at current levels. If I had offered you under 1.45 6 months ago you would have sold as much as you could back to Sterling. Might it go under 1.40, quite possibly. I would look to cover off some of your US Dollars on SPOT and if you have some time to play with I would put an order to sell USD from GBP at 1.40. Please contact myself or one of the trading team to implement these.
GBP/EUR? I think there is sufficient downside risks for Sterling that it may be worth considering covering off some of your Euro’s at current levels before we fall further. I think we’ll be trading around 1.25 the figure very shortly. Should you be holding out for a move higher please contact our Head of Trading whom can discuss a strategy with you to maximise any upside on GBP/EUR through a mixture of SPOT/Market Orders and Forward Contracts. If you are a EUR seller I would consider covering off some of your exposure at current levels and then aim for 1.27 then 1.26 then 1.25 on market orders. This will assist you in ‘averaging up’ your rate of exchange whilst offsetting some of your exposure.
What do we have out this week? The news will be covered with the ‘Brexit’ and on the data calendar we have a quiet week until Thursday with the release of inflation data out of the Eurozone. That is followed with Durable Goods orders released from the US with GDP numbers out of the US on Friday rounding off the week. I would caution that volatility will increase substantially on Sterling now so please do get in touch with us here at Aston to discuss your upcoming requirements.
If you have any questions please let me know.
Have a great week.
Written by Liam Alexander.