What direction now for GBP/USD? Will we have a bounce and target the 1.70 level or are we on our way back to 1.60? I believe the recent downward trend will continue and we'll be around 1.60 towards the end of 2014. I maintain the view that I've had since the beginning of the year. Indeed, Sterling was one of the worst performing currencies last week and only outperformed the Turkish Lira and Israeli Shekel. I would suggest with recent geopolitical events in those regions that wasn't too difficult a task. If you are a US Dollar buyer and you have capacity to cover off your exposure at current levels I would suggest you should take advantage and lock in a forward contract. Ultimately of course, it is your decision when to implement any transaction. If you haven't utilised a Forward Contract yet please contact one of the trading team and they will be happy to assist.Sterling has had a shift up this morning on the back of some comments from Mark Carney in The Sunday Times yesterday. The key points to take away were that the BoE have confidence wages will go up (even though they're in negative territory now), any rate increases, whenever they may be, will be slow and steady. The main point however wasn't cold hard figures but rather the lack of dissent between the members of the MPC. (No member has voted against Carney since he became Governor last year). Could some members of the MPC be less dovish than Carney? The BOE minutes will be key on Wednesday. Should we have a unanimous vote then the market may be disappointed and we may see Sterling continue its downward trend and we could be targeting 1.65. Should we have a dissenter then we may edge higher. Movements this week will be determined by the minutes so I would suggest having a strategy in place prior to the minutes on Wednesday. Why? Should we spike up you should have a market order in place to take advantage of the volatility around the release. Please contact myself or one of the trading team to discuss the implementation of an order and relevant levels to aim for.
We also have the FOMC minutes released on Wednesday so should we have some bullish rhetoric from Yellen GBP/USD could be pushed down further.
What of our favourite yet most frustrating currency pair, GBP/EUR? After having dazzled us with the push higher it was akin to Louis Van Gaal's first game in charge of Manchester United. A lot of good hard graft to get to the required level and when we got there it couldn't do the business and push on any further and so slumped. Perhaps too harsh a comparison on GBP/EUR.
We are still around what I would call 'fair value' on GBP/EUR however and as alluded to above the BoE minutes could dramatically alter the direction of GBP/EUR. For those of you whom have been active in FX for a long time you will know that Sterling has an uncanny ability to crash rather faster than its more stubborn cousin of a single currency. I would look to protect yourself this week and perhaps reassess your intended target levels for market orders. Please contact one of the Aston team to discuss. If EUR/USD comes under further pressure however we may see a boost to GBP/EUR however I think we'll be range bound on GBP/EUR for quite a while now. Indeed, with monetary policy being much of a muchness throughout the main economies volatility has been at the lowest I can remember for a long, long time.
We have other key data released this week with UK Retail Sales and inflation data released in the form of CPI data. It will be a busy week, especially for the month of August when most traders are by a pool so liquidity is often less than normal. With Geo political events dominating the news and the question of how Putin will play out is keeping markets more active and nervous than normal for the summer months.
So, in summary, make sure you have a strategy in place this week as you could be impacted more than normal if you have an exposure on Sterling. Please give one of the Trading team a call should you have any questions.
Have a great week.
Written by Liam Alexander