EUR/USD is now at a 7 week high after better than expected Spanish data was released this morning giving EUR a shove higher. The momentum is now in EUR/USD to break the psychological level of 1.40. EUR/USD is trading on Dollar weakness than any firm bid tone on the EUR. We can see that through GBP/EUR which continues to climb and settle above 1.20 the figure on positive figures released out of the UK.I still feel, in spite of overwhelming evidence of late, that we’ll see USD have a correction this year and strengthen considerably. In the meantime however, GBP/USD is certainly benefiting from Sterling strength and also the continued Dollar weakness. If you have a USD buy exposure I would look at covering off as much of your exposure for the remainder of 2014 at these levels as you can. I would also look at placing a market order at 1.70 the figure to take advantage if we do break this psychological level on GBP/USD. There will be a lot of resistance at this level and a number of ‘stops’ that will need to be taken out to establish any kind of foothold above 1.70. There may be a sharp upside move once through 1.70, however I would then expect a retracement back below 1.70.

If you remember a number of years ago we did hit 1.70 however we then came all the way back down to around 1.35/1.40. I don’t think we’ll experience anywhere near that kind of fall back over the next few years however a drop back below 1.60 is certainly more than possible. Now, I do know a number of you will be reading this and thinking back to 2007 when GBP/USD hit 2.10 and will be asking the question “Can it get back to these kind of levels?.” Of course, conceivably it could however that is a long old hike back up to 2.10. I would look at covering off 50%, if not more, of the rest of your 2014 exposure on GBP/USD on a Spot and Forward Contract basis. Please contact myself or one of the trading team to discuss a GBP/USD strategy this week.

GBP/EUR? We’re still range bound with no clear push to the upside forthcoming. We’ve been as high as 1.22 in 2014 however we then, inevitably, traded to the downside. I think ‘Peaks and Troughs’ best describe GBP/EUR. We will require some very positive news out of the UK (perhaps the cancellation of X Factor/Big Brother/Britain’s Got Talent) to push GBP/EUR higher. If you can achieve 1.21 on GBP/EUR I think this is a good level to transact your EUR exposure at. To achieve a rate of 1.22 I think the best course of action is to place a market order at this level and if you have a couple of weeks to play with then leave the order in the market on a GTC (Good till Cancelled) basis.

What do we have out on the data front this week? Markit Services PMI (Apr) was released out of the UK this morning that came in better than consensus with a reading of 58.7 compared with analysts’ expectations of 57.6. We have various tier 2 data out tomorrow however the main day of the week and where we are likely to see increased volatility is Thursday. Out of the UK we have the BoE Interest rate decision released along with the BoE Asset Purchase Facility (May). I don’t expect any change in either. The key event however, and it has been for some time, is the ECB Monetary Policy Statement and press conference where Mario Draghi, ECB President, will speak. This, more than any other event of late, gives EUR/USD and in turn a broad section of other currency pairs such as GBP/EUR direction. Should you wish to place any market orders this week on EUR or USD crosses I would suggest placing these by tomorrow to give yourself the best chance of maximising any moves that day in your favour.

Please contact me to discuss any of the above and if you have any questions please do let us know.

Have a great week

Written by Liam Alexander