So evidently Sterling is more of an autumn fan than that of the summer season as it seems to have cast off the beachwear for a light jumper and pushed on to fresh highs against the US Dollar and our dear friend/nemesis, the single currency.We had unemployment data out of the UK on Wednesday that came in better than expected with the claimant count falling to its lowest level since February 2009. As suggested on Monday the start of the week turned out to be quite frankly, rather dull in the currency markets, with little movement on the majors and range bound trading taking over. Wednesday morning we saw GBP/USD push up to 1.5828 on the back of the data releases and GBP/EUR hit fresh highs with a print of 1.1928 with the overall unemployment rate dropping from 7.8% to 7.7%. We’re still a way to go to hit the magic number of 7% that Mark Carney, the Bank of England Governor, has set to look at raising its key rate from the record low of 0.5% and tightening monetary policy. With the unexpected drop in the unemployment rate in the three months to July, City analysts are asking if the BoE has been too pessimistic in its predication of when we’ll hit 7% (late 2016 has been mooted). Have they been too pessimistic? I’d suggest not. Yes, labour market data has improved of late and the UK jobs recovery is gaining momentum however I’m in agreement (for once) with the CEBR that the Bank of England’s assessment is fairly close to the mark.
So, GBP/EUR? A push to 1.20 or a retracement back to 1.18? Having stated the above and my slightly less than optimistic outlook on the UK (must be the change in weather this week) I’m still positive short term on Sterling. We need a sustained break above the psychological level of 1.19 the figure, to continue the upside momentum. We’re currently flirting with 1.19 on a daily basis but we’re yet to take it out for dinner. Perhaps today, being Friday and all, Sterling will have the courage to ask her out. Should we get a date in the diary then I think we’ll push on and steadily climb towards 1.20.
Still buying all your EUR from GBP on a ‘Spot’ basis? It may be an idea, and it’s only a suggestion, that you look at working OCO’s (one cancels the other) to not only protect your downside risk but also try and maximise these recent bouts of Sterling strength. If you’d like a detailed explanation on how to implement this trading tool please contact either myself or one of the traders. At current levels it may be worth looking at an OCO order with a stop loss in at 1.18 and a take profit order at 1.1925 over the next week or so. On Cable (GBP/USD) I’d look at simply placing a take profit order in at 1.58 the figure.
What do we have out today? The UK and Eurozone are, technically speaking, pretty much totally dead today in terms of data. We had Employment change (QoQ) (Q2) out of Europe this morning with it coming in better than expected at -0.1% against the consensus of -0.2%. There has been little to no movement on the back of this. We also have the Ecofin (The Economic and Financial affairs Council) meeting and Eurogroup meeting taking place today. Expect statements such as “we’re heading in the right direction” and “progress is being made” to litter the financials today.
Across the pond this afternoon we have Retail Sales (MoM) (Aug) at 13.30 (UK time). This is tier one data so expect some volatility at the US opening today and should you be looking to put an order in on any USD crosses please let myself or one of the traders know. I’d expect today to be quiet till later on however it only takes one of the ‘experts’ or members at the Ecofin to suggest/say something preposterous or heaven forbid, sensible, to see some movement on EUR crosses.
If you have any questions please do let me know and have a great weekend.
Written by Liam Alexander