The UK and US market holiday yesterday meant there was a subdued start to the week. Today, we have the ECB president, Mario Draghi, speaking and that may provide us with some volatility on the EUR. GBP/EUR posted 15 month highs last week and I expect the recent run to have another push to the upside. I think however we’re looking toppish and if you can cover off a large amount of your exposure at these levels you will be well placed for the rest of the year. As I’ve said numerous times before, anything above 1.20 is better than ‘fair value’ and if you can lock in above this level I don’t think you can go far wrong. You may want to consider a forward contract above 1.20 and guarantee yourself a fixed rate on a 3 month or 6 month basis. One less thing to worry about!Do you think there is potential for a sustained break higher? If so, place a market order at a specific level and we’ll implement that for you so that if it executes on the overnight Asian session you can take advantage of the market movements rather than be consigned to Spot on the London session. Please contact myself or one of the trading team to discuss implementing a strategy on GBP/EUR for the upcoming week/month ahead.
Apart from Draghi speaking this afternoon there is little other events of note on the calendar for today. Tomorrow all eyes are focused on Unemployment data out of Germany with the consensus being for an improvement on the Unemployment Change figure (May) from -25K to -15K with the unemployment rate set to remain unchanged at 6.7%. Should the Unemployment Change figure disappoint then we may see further EUR weakness meaning we may see a further push higher on GBP/EUR.
As always the main play and direction is through EUR/USD. With EUR/USD failing to break psychological resistance levels at 1.40 and dropping off I expect this downtrend to continue. As suggested at the beginning of Q1 I expect the US Dollar to be the strongest currency from the end of Q2 to the end of the year. I would anticipate EUR/USD coming off further with levels of 1.32 to be targeted in the next couple of months. I expect EUR/USD to fall with a mixture of EUR weakness and US Dollar strength short-term. We have US GDP (Q1) realised on Thursday that pretty much wraps up the week in terms of data. Estimates are for a fall from 0.1% to -0.2% however I expect the figure to come in better than expected than -0.2% so we should see some USD strength short term on the back of it.
GBP/USD is now settled into a nice trading range and with the weather being as gloomy as it is I don’t think it wants to come out and play much and would rather sit indoors and watch the news rather than participate in it. It can be easy to get blasé about the levels GBP/USD is at however one has to remember that Sterling has a history of falling off highs rather quickly. We could easily be at 1.60 in the next few months. On that note, as always, it is best to have a plan/strategy in place to limit your risk and cover off some of your exposure at these levels. Might it go 1.70 on Cable? Perhaps, however as suggested it may go 1.60 the figure first. Look to cover on Spot/Market orders/Forward Contracts/OCO’s in a way that best works for you. Please contact one of the Team here to discuss a strategy specific to your needs.
Have a great week
Written by Liam Alexander