And just like that; a new month is upon us. This year has gone both slow and fast at the same time. We are now out of the “Summer Markets” and preparing to go back into full swing. Most traders will now be back at work and liquidity should return in full force to the markets.
Sterling has been rallying against the U.S dollar over the last 3 months, currently trading just below 1.34- with the next target being 1.35. Crazy to think just a few months ago in March, the exchange rate was sitting at 1.15! This truly has been a year we will all remember for more reasons than one.
Before I go into any particular data points I am eying this week, it’s important to note a few things that you should be keeping an eye on over the coming months that could have an impact on the exchange rates.
- The U.S Presidential Election (3rd November)
- Brexit Talks & Deadline (December)
- BoE, ECB & FED Decisions between now and December
- Furlough scheme ending in the UK (End of October)
- Any further lockdowns
- Coronavirus vaccine news
- Inflation rates in UK, EU & USA.
The above are the macros that I am watching, some, of course, can come at any time and completely change the trajectory of the market, so as I have been saying since March, all forecasts should be taken with a pinch of salt, and please feel free to check in with me for any updates.
You will note that recently I became more bullish on Sterling, and this view hasn’t changed, I think the Pound is undervalued (Mostly against the Euro now) and has bottomed out, providing we don’t see a No Deal Brexit, which is highly unlikely in my opinion, then I think that Sterling is prepared for lift off.
The thorns in Sterling’s path are as follows, UK Unemployment from October, though this is somewhat priced in, a really bad number will impact the exchange rate. Of course, Brexit is another, I do feel a deal will be done last minute and we may see volatility up until that day. The last is the Bank of England; if we begin looking further into negative interest rates, then this will devalue Sterling.
Looking at GBPEUR, I don’t see much in the way to start reaching 1.13/1.14, we will, of course, need price action to drive this, but these are my medium-term targets.
So now let’s look at data releasing this week that could be interesting for us- the market seems to be watching data a little closer now, which is providing sharp moves in rates.
- 1st September- UK Manufacturing PMI (Expected Positive)
- 1st September- Eurozone Core Inflation Rate (Expected at 0.8%, lower than previous)
- 1st September- U.S Manufacturing PMI (Expected Positive)
- 2nd September- UK Nationwide House Prices (Expected to show growth)
- 2nd September- U.S ADP Employment Change (Expected positive)
- 2nd September- Numerous BoE speeches
- 2nd September- Fed Beige Book
- 3rd September- UK Services PMI (Expected positive)
- 3rd September- U.S Trade Balance
- 3rd September- U.S Jobless Claims (Expected positive)
- 4th September- U.S Non Farm Payrolls (Very volatile)
As always if you have an upcoming transaction, please don’t hesitate to contact me.