Where now for GBP/EUR? Sterling mustered up some courage and elected to flirt with 1.19. A dinner date seems a while off though. We’ve been up to levels around 1.1950 however we’ve seen a gradual retracement back below 1.19 in the past few trading sessions. We had the German Elections on Sunday and results have shown that Angela Merkel will remain in control however the make-up of the coalition looks slightly harder to call but it looks as if she will form a grand coalition with the SPD party. Should the negotiations become somewhat complicated then we could have a bout of EUR weakness that could put Sterling back on the ascendency. I still feel we will break through 1.20, I don’t see any fundamental reasons to buy EUR and I don’t think many investors do either. Sterling strength has surprised me of late. I didn’t think we’d be pushing to the levels we have seen in recent trading sessions. Do I think Sterling strength will continue? Yes. However, I think, as always, there will be peaks and troughs in upcoming sessions with movements being slightly more subdued than the past few sessions.We’re fairly light in terms of data until the middle of the week. We have Mario Draghi speaking on Monday afternoon so we will see some volatility on EUR crosses around lunchtime (UK time). The only data of note out on Tuesday is from across the pond in the US with Consumer confidence (Sept) out. On Wednesday we have U.S. Durable Goods orders (Aug) out.
The beginning of the week will be interesting Dollar wise especially to see if there are any movements on Cable (GBP/USD). We were quite confident on GBP/USD breaking 1.60 last week and as we suggested 1.60 was the right level to implement take profit orders and OCO’s to maximise your upside potential on an intraday basis. I think we will see a further push up on GBP/USD. I’m going to suggest we’re going to now push to 1.65 within the next month. I could be wrong, it’s happened before. However, I now see continued dollar weakness. The moves recently on GBP/USD have been large. We were trading under 1.50 the figure not so long ago. Do you know the exchange rate you priced your business contracts at? If we’re above this level it may be an idea to lock in a ‘currency profit’ by utilising forward contracts on a one month to three month basis as it takes the headache and uncertainty away. Could it continue to go up and you ‘miss out’ on a better rate? Of course. However, there is room for it to drop substantially. Contact either myself or one of the traders to discuss your trading strategy and how best to manage your currency exposure for the rest of the year. At present I would look to place orders at 1.60 the figure again.
EUR/USD? I’m bullish on this pair simply due to dollar weakness. I think we’ll break a few resistance levels in upcoming trading sessions with a push to the 1.3710 level (2013 high). We’ll see some resistance around 1.3620 which I expect us to push through however I do not think EUR/USD will have the legs to push towards 1.40. If the rate does get back to the high of the year we could then see the pair retreat and get back to boring range bound trading before too long between 1.30 and 1.34.
On Thursday all eyes will be on the UK with the release of the GDP figure out at 09.30am. Consensus is for 0.7%. I expect us to come in on consensus with potentially a slightly worse than expected figure. I’m being slightly less than positive as I think traders may want to ‘book profit’. Therefore, if you sell USD or EUR and purchase GBP you may want to look at a few sell orders as I think we may see a short-term downward retracement. The outlook for GBP is positive. However, after the recent gains I feel we’ll tread water so to speak for a while before another push to the upside. Contact myself or one of the traders to implement an order. I’d suggest to look to do this on Wednesday afternoon at the latest.
On Friday we’re back to our Eurozone neighbours with the release of some CPI data and Mario Draghi speaking again.
Are there are any currencies you would like us to focus on in more depth? If you have any questions whatsoever please do not hesitate to contact me.
Have a fantastic week.
Written by Liam Alexander