As we near the end of summer and the nights draw in (a depressing thought I know), Sterling has decided to come to life and cast off its penchant for doom and gloom. We’ve surged upwards on cable (GBP/USD) this week to fresh highs of 1.5667 Thursday after the report from the BoE. There were no surprises yesterday as the key lending rate was held at 0.5% and stock of asset purchases at £375 billion. We’ll receive details and the minutes of the meeting on 16th September.I’d expect some strong resistance now on GBP/USD around the 1.5675/1.57 level. Are you a buyer of USD from GBP? If so, I’d look to secure some on a forward contract as the end of month target level quoted from many analysts remains at 1.55. We’re at the higher end of the range now and yes there may well be some more upside potential however Sterling more often than not flatters to deceive. Anything at 1.55 or above represents ‘fair value’.
GBP/EUR? We’re now at more realistic levels as GBP/EUR has been undervalued for best part of 3 years. Are we on for a push back to the 1.20 level? I’d suggest we are. Have you utilised an ‘OCO’ with Aston yet? It is a simple yet extremely effective way for you to protect your downside risk whilst also looking to gain from any intraday and overnight market moves. Please contact your trader to discuss how these can assist with your management of currency exposure and risk.
Why do I think GBP/EUR is going to push over the 1.20 level? Greece will need further assistance with their debt, the Spanish and Italian economies are still seeing output fall and there are a whole host of other reasons. Happy to discuss in more depth if you’d like to email or call me. Quite frankly though I’m a little bored mentioning the southern European economies as it’s all we’ve been talking about for the past three to four years. A comment yesterday from the Euro Group President Dijsselbloem could have been said in any month of any year since we got into this mess “Recovery remains fragile but there is reason for optimism” Really? Some details and a plan would be nice however they haven’t been forthcoming so far so I don’t expect that to change. A lot of talk and ‘togetherness’ with very little sound fundamental reasons as to why there is optimism.
Mario Draghi spoke yesterday and suggested that key interest rate levels will remain at current or lower levels for an extended period of time. At the press conference, the comments from the ‘dovish Draghi’ and the US ADP employment report (the precursor to the Non-farm payroll figure) along with the jobless claims figure pushed EUR/USD to the downside and under 1.32 after sitting above there for most of the afternoon.
EUR/USD has been range bound for as long as I can remember. I think we’ll now have a push towards the 1.30 figure again. Exciting stuff.
If you’re a buyer of EUR from GBP you should look to lock in and offset some of your exposure around these levels. I know some of you want 1.20 as psychologically it’s a nice level however to limit your risk upwards look to stagger orders at 1.1850/1.19/1.1950 and then 1.20.
We have the ‘NFP’ figure out from our dear friends across the pond this afternoon along with the unemployment rate. The Non-Farm payroll figure is a keenly awaited figure and the market is often volatile on the release of said figure. I would look at placing market orders before 13.30 (UK time) to try and take advantage on any movement on USD currency pairs that you have exposure to.
If you have any questions whatsoever please feel free to contact me or one of our trading team. We’re here to help.
Have a great weekend.
Written by Liam Alexander