GBP/USD hit 5 year highs last week however there wasn’t a sustained break to the upside and through the psychological level of 1.70. Resistance proved to be too great and we’re off around 1% or so from last week. Cable had a small bounce this morning after trading higher in the Asian session and we’re up around 40 pips or so from opening. Will GBP/USD have another crack at pushing higher? With data releases out this week there is a chance that it may indeed do so. Why? We have the release of Unemployment data and the Quarterly Inflation report on Wednesday that will give us a clear indication on the direction for cable. Will it be a push higher or a move lower that may open the door to a sustained break downwards through 1.65? The market is waiting to see if there are any hints from the BoE that tightening is likely. If inflation and growth forecasts are revised higher than investors and market participants may feel there is enough reason to warrant pushing Cable through 1.70.Today is a non-event in terms of data so I wouldn’t expect a great deal of volatility to get the week under way. Wednesday is the main day for Sterling so if you have a requirement this week to either Buy or Sell GBP against any currency I would look at having a strategy in place by close of business tomorrow. I would suggest utilising a market order to take advantage of any spikes on an intraday basis around the releases of 09.30am UK time and 10.30am. Please contact myself or one of the trading team to discuss implementing a market order to cover off some of your exposure.
GBP/EUR? After flirting with 1.22 for what seems like an eternity we seem to have achieved a foothold. Wednesday, as above, will determine if it is sustainable. Again, please contact me to place an order at an agreed level to execute. If you can secure above 1.21, and have the capacity to do so, I would look at securing a large percentage of your exposure at these levels. I know a number of you will now be asking the question “Is it going to 1.25 or even 1.30?” 1.25 I think is possible however that won’t occur till at least Q3. If you can cover off the remainder of your Q2 exposure on a Forward contract this may be a prudent thing to do. 1.30 I think will be challenging however I do believe that the EUR is massively overvalued so there may be an opportunity of this in Q4. As we all know however GBP/EUR has the canny knack of massively disappointing and going against all manner of perceived and conventional wisdom. We do have some key Eurozone data out this Thursday in the form of inflation data with the releases of CPI (YoY) (Apr) followed by GDP (QoQ) and (YoY) Q1 that will give us an idea of how the Eurozone is performing. I expect slightly worse than expected figures so there may be an opportunity to take advantage of this with a spike in GBP/EUR. Please contact myself or one of the trading team to work either a market order or an ‘OCO’.
EUR/USD? 1.40 was too much for EUR/USD and it has since dropped back below 1.38. That is still too high and I think Draghi is probably more comfortable with a slightly weaker EUR. I believe we’ll start to see a gradual weakening of the single currency through EUR/USD from now on and we should see EUR/USD start to target 1.35 to the downside with an end of year target of just over 1.30. Thursday afternoon may give the US Dollar a boost with the release of Inflation data from the US and also initial jobless claims.
The most interesting pair this week is GBP/EUR. Please give me a call to discuss this should have a requirement. We’re now at the highest levels since January 2013. If now isn’t a good time to purchase EUR then I’m not sure when is.
Have a great week
Written by Liam Alexander