GBP has held firm against the US Dollar with UK housing data released overnight giving the pound support going into the start of, what will be for many, the last working week of the year. Where now for GBP/USD? I think we will have fairly range bound activity today however with ECB president Mario Draghi speaking at 14.00 this may provide some cross pair volatility. If you need to cover off some of your exposure by purchasing US Dollars this week it may be a good time to do so. Why? The US may well indeed start 'tapering' QE over the festive period and pull back some of the 85 billion or so it has pumped into the economy. The result? A surge in the US Dollar that will push GBP/USD back down below 1.60. As I've said time and time again anything over 1.60 on GBP/USD provides 'fair value' on this pair. If you have the capacity to lock in at these levels on a forward contract I would suggest it would be the correct thing to do as we've been as low as 1.48 this year. What if the rate improves drastically from where you booked your currency at on a forward contract? Simply buy on spot basis when the rate is above that level. You are still locked in at an advantageous level. Get in touch with myself or one of the trading team to discuss your options for the remainder of December and Q1.GBP/EUR? Simply put, it's become rather dull once again. It has about as much personality as some of the 'personalities' in the BBC's sports personality of the year award. I would look at working orders on an intraday basis at levels of 1.19 to try and catch any spikes/excitement in the market. I don't think we'll see 1.20 again in December although it will be largely dependent on EUR weakness than any other further strengthening of Sterling. If you look at EUR/USD I would argue this is toppish and likely for a retracement back to lower levels. Should this occur then we may see a jump in GBP/EUR and may have a shot of being over 1.20 again. With the US Dollar being out of favour at present investors are jumping into the EUR hence the recent decline in GBP/EUR. Send me a quick email if you would like to implement market orders at 1.19.
What data do we have out? As mentioned above we have Mario Draghi speaking today that will provide some volatility on EUR pairs. Attention turns tomorrow to inflation data in the form of CPI (Consumer Price Index) out of the UK, Eurozone and the US. We also have sentiment data out with the release of the ZEW survey from Germany and the Eurozone as a whole.
Wednesday will be a key day for Sterling. If you are looking at market orders I would suggest putting these in place today. We have unemployment data released and also the Bank of England minutes and claimant count change. These releases will provide certain volatility in the morning. If you have a USD exposure Wednesday evening will be crucial as we have the FED meeting with the press conference being key. Any mention of tapering, or a lack of, could move GBP/USD substantially. Please have some form of protection in before Wednesday. Think we'll see GBP/USD spike? Please discuss appropriate levels to aim for with one of the trading team. Friday rounds off a busy week of data with GDP figures released out of the UK.
If you have any questions please let myself or one of the trading team know and we'll be happy to discuss.
Have a good week.
Written by Liam Alexander.