As thoughts move to overcoats with the turning of the weather all eyes are on Sterling. Will the volatility of the past few weeks give way to range bound (dull) activity? To a point. With the referendum, or the ‘neverendum’ as a friend named it, dominating headlines a move away from this is welcome. The political moves and promises will need to be stuck to or Sterling could prove turbulent again however I think there is genuine desire from the ‘Westminster elite’ to do the right thing. Time will tell.I still maintain my 12 month forecast that GBP/USD will be under 1.60 by year end. I don’t see too much more upside for GBP in the remaining months of 2014 against the US Dollar. I believe we’ll see a stronger US Dollar and although the fundamentals for the pound remain moderately strong, upside will be limited. You should look at working market orders to take advantage of any spikes on Cable (GBP/USD) on an intraday basis. Please contact myself or one of the trading team to discuss a strategy for the remainder of 2014.
I believe the main moves over the remainder of the year are going to be determined by a stable Pound, a stronger Dollar, and a weaker Euro. Indeed, last month Sterling strengthened 1%, the Dollar rose 3.1% and the single currency dropped 1%. I expect this trend to continue although the pace of these moves may be tempered by a period of profit taking in the markets, particularly this week.
So in short, what does this mean for GBP/EUR, GBP/USD and EUR/USD for the remainder of the year? I believe we’ll see GBP/EUR higher, GBP/USD lower and EUR/USD lower. As always the main movement will be through the EUR/USD pair and this will impact GBP/EUR and cable. As discussed in previous reports I believe the ECB and Draghi want a weaker single currency. It would not surprise me if EUR/USD was under 1.25 in the next month or so.
If you are EUR buyer from GBP look at ‘averaging’ up your rate of exchange through market orders. Stagger them at various levels so you are continually improving your rate of exchange whilst mitigating some of your risk by reducing your exposure. As I’ve said before, doing nothing is speculating.
What do we have out this week in terms of data? We have the ECB president Mario Draghi speaking at 2pm (UK time) today so that should provide us with some volatility. I would expect further weakness for the single currency so if you have a EUR requirement today please have something in place prior to this. We are very quiet on data this week with only the GDP (Q2) figure out from our neighbours across the pond on Friday being of note. As stated above the recent moves and volatility in the market may be replaced by a level of calm this week. However, with geo-political events dominating the news from Russia to West Africa to the UK, any commentary could prove to move the markets.
If you have any questions on implementing a strategy for the remainder of Q4 and into Q1 next year please do let me know.
Have a great week.
Written by Liam Alexander