The Euro has weakened this morning. German Coalition talks are progressing at the same pace as Mugabe takes to make a decision. Is the Euro now on the back foot after recent moves to the upside? Short-term, yes.
GBP/EUR has moved in a range from 1.11 to 1.13. Are we due to break out of this range? We may see a spike higher in the pair with a breakthrough of 1.13 although I think this will be short-lived. GDP data out of Germany last week proved stronger than expected and fundamentally the Eurozone is in a stronger position than the UK and the US. However, the Eurozone does have its own political problems to deal with in addition to Brexit negotiations so the single currency is still susceptible to volatility.
You can view recent movements on GBP/EUR on the graph below –
If you have a requirement to purchase Euro’s from Sterling I would cover off some on a SPOT basis and then look to implement market orders at 1.13 the figure. I think this will be toppish for the pair for the remainder of the month.
Please contact the trading department to agree rates of exchange and also to structure market orders.
Sterling wise, it’s more of the same. A mixture of ‘good’ and ‘bad’ data with productivity up although the labour market is still struggling. This offset is going to continue that will see Sterling relatively directionless. December is when we’ll see either a move to the upside for GBP or a sharp fall. Will the UK settle the ‘divorce bill’ with the EU? If so, what will the final number be? Will the markets take this as a positive or a negative? If you have GBP exposure please make sure you have a plan in place going into December.
Prior to December the main event surrounding Sterling is the Autumn Budget Statement which is out on Wednesday. Will we see the Chancellor, Philip Hammond, increase public spending? Does the market take this as a positive or negative with the long held plan of cutting the deficit and ‘balancing the books’ a key goal? The Chancellor is rather hemmed in on most fronts so he’ll need to pull a colony of rabbits out of his hat to keep Sterling moving upwards.
On Sterling/Dollar, Donald Trump and US tax reform is stopping any sustained Dollar momentum. This has resulted in Cable (GBP/USD) moving through 1.32 the figure. As mentioned numerous times before, I expect Sterling/Dollar to finish the year around 1.32. If you can achieve above this level purchasing USD from Sterling I would look to lock some in. One less headache before the horror of Christmas shopping is upon us. 1.33 is toppish on Cable (GBP/USD) I feel with a few challenges of the 1.3320 level in the past. I don’t see us pushing much higher than this.
You can view recent movements on Sterling/Dollar on the graph below –
I expect GBP/USD to resume a slight downside bias in upcoming trade so if you are holding USD consider implementing market orders at 1.32 this week. Please contact the trading department to implement this.
This week, data wise, our friends across the pond are tucking into Turkey and pumpkin pie for Thanksgiving on Thursday so it will be a relatively light calendar in the US this week. We have the FOMC meeting on Wednesday although that will be a non-event.
We have inflation report hearings out of the UK on Tuesday although I don’t expect any revelatory information. We are currently at 3% on inflation and whilst we might see a small tick higher I don’t see us pushing much further. We have GDP (YoY) and (QoQ) (Q3) released and expectations are for prints of 1.5% and 0.4% respectively.
December may prove to be the month that sets the tone for Q1 ‘18 with Brexit negotiations seemingly coming to a head. Please make sure you have discussed your strategy with us and also forward contracts going into next year to take risk off the table before you get stuck into the mince pies.
Any questions in the interim please do let me know.
Have a fantastic week.
Written by Liam Alexander