Monsas Update Monday 13th August 2018

The Premiership football season is upon us again. No doubt all the teams will crumble to Manchester City like the Turkish Lira did against, well, every currency last week. Will the Lira rally this week? It has fallen so far that if it doesn’t rally then the word ‘contagion’ will be back in the headlines. That will only exacerbate the impending debt burden and issues for Turkey.

EUR/USD has fallen to 13 month lows at 1.1360 although has since recovered slightly to test the 1.14 handle. The Euro has taken a hit on the back of the Lira devaluation with contagion fears due to a number of European Banks having exposure to Turkey. EUR/USD has also been further weighed upon with investor outflows from EM (Emerging Market) currencies into safe haven currencies like CHF/JPY/USD. The US President, Donald Trump, also added to Turkey’s problems with a doubling of tariffs on Turkish Steel and Aluminium in a continuation of the political spat over the detainment of the American citizen Andrew Brunson.

You can view the recent downside movements on EUR/USD on the graph below –

EUR/USD - 1 Week

If you are holding any US Dollars and need to convert into Euro’s please take advantage of the recent price movements. If you can trade anywhere under 1.15 the figure then I would consider locking in a significant amount of your exposure at current levels. Please feel free to contact me directly to discuss a strategy and the trading department to execute your transactions.

Sterling/Dollar

Sterling is going to be under pressure short-term. The political ‘elite’ don’t seem able to run a bath never mind a country at present. Political risk is going to be a negative for the pound. Potential leadership battles, backbencher revolt, and the small matter of a ‘No deal’ Brexit is going to keep the compass pointing south for GBP. If you have a requirement to sell Dollars back to Sterling I would firstly take advantage of the current rates with a SPOT transaction. Please contact the trading department for a rate to execute at. Once you have covered off a SPOT transaction I would consider staggering market orders to the downside at 1.2750/1.27/1.2650. This will allow you to average up your FX rate should we hit these levels.

There has been talk of Cable (GBP/USD) falling to lows last seen in 1985 should we have a ‘No deal’ or a very poor deal on our exit from the EU. Whilst of course this is a possibility that is still 8 months away. On a 10 year basis, you are still massively in favour on a USD/GBP trade so take advantage at current levels.

If you are on the other side of the trade and need to move Sterling into USD then you are looking for some intraday spikes and some short-term recoveries. Unfortunately, I expect these to be few and far between at present. Look at some orders around 1.28 the figure although I would caveat that the potential for further downside movements are high. Look to protect your position by covering some of your exposure on a SPOT basis and the implementation of a Stop Loss. Please contact the trading department to discuss your individual requirements in more depth.

You can view the recent movements on GBP/USD on the graph below –

GBP/USD - 1 Week

Last week was relatively data light although the geopolitical element in Turkey moved markets. This week we have some data releases out of the Eurozone and the UK that will be keenly watched and should impact GBP/EUR.

Sterling/Euro

Sterling traded under 1.11 last week against the Euro. This looked like a one way bet until the Turkish situation unfolded and weakened the Euro giving the pair some respite. We are currently trading at 1.12. We will likely move sideways today with nothing of note out. However, I expect the downtrend to resume dependent on figures printed this week. We have GDP (QoQ) (Q2) Preliminary out of Germany tomorrow and GDP (QoQ) and (YoY) (Q2) Preliminary released for the Eurozone. The German GDP figure is expected to print 2.5% against a previous of 1.6%. This should give the Euro a short-term boost driving EUR/GBP lower. On the UK side we have the release of Average earnings (3M) (Jun). On Wednesday we have inflation data out of the UK in the form of CPI (Consumer Price Index) readings and also the Inflation report hearings. This should impact on Sterling. Friday we have some inflation data out of the Eurozone to round off the week.

If you can achieve under 1.12 to sell EUR to GBP I would take advantage of this. Please consider implementing a market order at 1.12 the figure by contacting the trading department. If you have a requirement to purchase EUR from GBP then you may have some upside potential with Turkey’s issues set to continue for the immediate future in any case.

You can view the recent price movements on GBP/EUR on the graph below –

GBP/EUR - 1 Week

If you have any questions please get in touch with me directly as the FX landscape is going to shift considerably this year one way or the other.

Have a fantastic week.

 

Monsas Update Monday 6th August 2018

Is it time to put away the sun hats and dig out the tin hats? Cable (Sterling/Dollar) has hit 11 month lows today on the back of increasing concerns on a ‘No deal’ Brexit.

Sterling/Dollar

Last week we had the long awaited interest rate decision from the Bank of England.  Market expectations were for a rise of 25 bps to 0.75% and it duly arrived. The only slight surprise was that the vote was unanimous. You would think with rates being next to static for the best part of a decade that there would have been more of a lift for Sterling.  After a brief jump above 1.31 the pair was back on the defensive. We moved below the 1.30 handle and since then the downside move has continued.

You can view the movements on Sterling/Dollar on the graph below

GBP/USD - 1 Week

Like the changing of the seasons, focus has now returned to ‘Brexit’. Should there be a ‘No deal’ then expectations are for Sterling to weaken by a similar amount to the night of the referendum. That could conceivably see Sterling/Dollar significantly below the 1.20 level. If you have a requirement to purchase USD from GBP over the next 6-9 months it may be prudent to consider a Forward Contract to de-risk your position. Please contact the trading department to discuss rates and margin requirements.

If you’re holding Dollars consider implementing a series of market orders to take advantage of potential further downside risk to Sterling. I would caveat though that to sell Dollars into Sterling at present is the best its been in almost a year. Consider covering off some on SPOT and then work in some market orders. Please contact the trading department to discuss technical levels and realistic levels to achieve in your timeframe.

This week there is little data of note out from the UK other than preliminary GDP (YoY) and (QoQ) (Q2). I wouldn’t expect any great showing on these numbers so Sterling is likely to remain flat if not come off further.

Sterling/Euro

We have moved under the 1.12 level on GBP/EUR. 

You can view the movements on the graph below –

GBP/EUR - 1 Week

INSERT GBP/EUR GRAPH

The dollar is in the ascendency and has pushed EUR/USD down to the mid-1.15s so the Euro is under pressure too hence the move on Sterling/Euro being less severe than through Sterling/Dollar. GBP/EUR has been fairly range bound for a number of months. If you are holding Euro’s I would suggest covering off some into GBP as we’re approaching the low of the range. Please contact the trading department for a rate of exchange.

Politics and Brexit are likely to be the main drivers over the summer months for Sterling so any commentary from officials will impact Sterling. Please make sure you have discussed a strategy with our trading team to mitigate your risk over the next few months,

If you have any questions please get in touch.