Is Sterling on a comeback against the US Dollar or will it be as successful as some 90’s pop group reunion? We topped at 1.6260 on October 1st, the highest level since January 2nd. There has been a retracement back to around the 1.60 level and we seem to have found some support. The biggest event this week for Sterling is undoubtedly the Bank of England interest rate decision and the Asset Purchase Facility decision released on Thursday. I expect the status quo to remain on both which should lend some support to the Pound as it would suggest the Bank is moving further away from the easing cycle. We also have the continuation of the US debt ceiling worries with the Republicans and Democrats failing again over the weekend to come to any sort of compromise. With an immediate resolution as likely as ‘Strictly come Dancing’ being entertaining we will have a reduced amount of US data released this week. The August trade report is likely to fall by the wayside as the NFP (Non-farm payroll) did on Friday.As we’ve had this ‘dip’ on GBP/USD it may be an idea to look at placing market orders around 1.6050/1.61/1.6150 to take advantage of any good news and spikes in Cable this week if you have an upcoming requirement. These levels are still very attractive to buy USD at from GBP. I can’t stress that enough. If you have a look at the graph below you’ll see where we’ve moved this year on GBP/USD, as you can see we have been down to the 1.48’s twice this year so anything above 1.60 is towards the top end of where the rate has been. Contact myself or one of the trading team to discuss implementing orders this week -
GBP/EUR? I hate to say I told you so but I told you so. We reached 1.20 the figure and we’ve since dropped off to just below the 1.18 level. 1.18 doesn’t sound as good as 1.20 granted. However, again, we’re at good levels on GBP/EUR when you look at in on annual basis. On an order perspective I would aim to secure at 1.1850/1.19 over the course of this week and the remainder of this month. We may even see GBP/EUR drop off further so it may be an idea to cover off some of your exposure. Why? As strange as this sounds we may see/continue to see the EUR being used as a ‘safe haven’ meaning investors will flock to this currency and therefore we would see some EUR strength. With a flight from emerging markets, riskier assets and the on-going drama in the US the EUR is being touted as a main benefactor, even with all the inherent problems the single currency still possesses. I’d suggest the EUR may continue to see some support however I’m of the opinion still that the EUR is overvalued relative to Sterling.
EUR/USD is struggling away with the 1.36 level and it’s become somewhat boring in recent trading sessions. It keeps trying to have a sustained break to the upside however it keeps getting beaten down with moves back below the figure. We’re currently trading at 1.3580. I think we’ll see EUR/USD remain relatively range bound unless we have some breakthrough in the U.S. negotiations.
The main data to look out for this week is the ECB Monthly report released on Wednesday with Draghi speaking. Out of the UK we have the NIESR GDP estimate (3M) (Sep). We should have some volatility on GBP/EUR on Wednesday so it may be an idea to put any orders in the market today or tomorrow in preparation for Wednesday. We also have the FOMC minutes out from the US on Wednesday afternoon, UK time. Thursday, as alluded to earlier, we have the Bank of England Interest Rate Decision along with the Asset Purchase Facility decision. Friday, we have mainly data out from across the pond with Retail Sales, unemployment data, and the NFP figure released due to it being rescheduled from last Friday. Expect a lot of USD volatility in the latter part of the week.
In summary, I would look at orders at 1.1850/1.19 on GBP/EUR and 1.6050/1.61/1.6150 on GBP/USD.
If you have any questions or would like to look at your exposure and trading strategy for the remainder of 2013 please let myself or one of the trading team know.
Have a fantastic week.
Written by Liam Alexander