GBP: Coverage of the Pound Sterling Exchange Rate Complex
- Written by: Gary Howes
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The UK currency is weak on Monday morning following on from a disappointing first week of April. We consider the latest viewpoints on Monday.
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16:48: Sterling nurses 'flimsy bias'
"Sterling continued to nurse a flimsy bias after forecast-undercutting surveys last week tempered recent U.K. optimism. Data last week showing cooler growth in U.K. manufacturing and services activity suggested ample scope yet for the BoE to leave rates at record lows. The BoE meets this week and is due to render a policy decision on Thursday, with no changes expected. On tap next week are key surveys on British inflation and unemployment—data that can shed light on the road ahead for central bank policy." - Joe Manimbo at Western Union.
15:53: Volatility slumps - expect ranges to be maintained
This observation from Kathy Lien at BK Asset Management:
"At the start of trading this week, option volatilities in the foreign exchange market have dropped to fresh multi-year lows. As shown in the charts below, the volatility of EUR/USD 1 month options has fallen to its lowest level since 2007 and for USD/JPY and GBP/USD, volatilities are at their lowest level since 2012.
"The low volatility environment has a few important implications for currency traders. First, low volatility points to range trading and with no major U.S. or European reports, there's a very good chance that currencies will consolidate this week. This makes the chance of the EUR/USD breaking 1.36 and USD/JPY rising above 104.50 slim."
15:30: GBP currently trendless
The assessment of Monday's trade in GBP at KBC:
"According to KBC Market There were no important UK eco data. The dollar was under slight pressure across the board, helping cable to return to the high 1.65 area. In this dollar move, EUR/USD slightly outperformed cable, as the euro recouped part of last week’s losses and as some ECB policy makers suggested that unconventional measures are possible, but still some distance away. EUR/GBP is changing hands in the 0.8275 area, compared to 0.8265 at Friday’s close."
15:25: GPB-AUD could slide to 1.71
The following warning on GBP-AUD comes from Shaun Osborne at TD Securities:
"We noted that an alignment of negative signals for GBPAUD (strong bear trend momentum, bearish longer-term price signals — Head & Shoulders bear reversal) put the cross at risk of a deep slide.
"Today’s slide to new lows for the year enhances the bear picture even more. We think the early 2014 H&S top/reversal targets a slide to 1.7150 (possibly fairly quickly). The 1.81 area remains key resistance in the short run."
14:30: No direction here
"GBP is flat to Friday’s close, trading at its 50‐day MA of 1.6587. The BoE meets on Thursday, but is unlikely to shift policy, leaving the FX associated risks relatively muted. There was limited data today, with this week’s focus industrial and manufacturing production, the trade balance and housing data. GBPUSD short‐term technicals: mixed with technicals suggesting there is no real evidence of a trend nor is there strong pressure in either direction." - Camilla Sutton at Scotiabank.
13:41: £ benefits vs CAD and AUD in risk-off conditions
Markets are in the red on Monday, and this is aiding sterling against the commodity dollar complex. Greg Anderson at BMO Capital says:
"Last week saw crosses like EURCAD and GBPCAD correct substantially lower. Markets had been funding European currency longs with AUD and CAD shorts for much of calendar 2014. Thursday’s ECB press conference and Friday’s Canadian payrolls triggered squeezes that cleaned out these positions. Now, however, with risk aversion rising, AUD and CAD are reversing lower against EUR and GBP once more."
12:38: Technicals confirm a bullish sterling dollar rate
The team at Alpari UK are predicting further hesitant gains in the Cable:
"Sterling is looking a little more bullish against the dollar at the moment, but the lack of upward momentum is still a concern. The pair failed to significantly break below the marabuzo line of the previous weeks candle which is quite a bullish signal, especially as it comes off the back of the pair finding support from the ascending trend line, 61.8 fib level and 20-week SMA.
"However, as already mentioned, the pair has not taken off as you’d expect from a bullish bounce off a key support level. I think we need to see new highs being made, above 1.6683, before we see any significant gains being made. Clearly traders are unconvinced so far and require some confirmation hat the recent downtrend is over."
11:53: Afex say GBP-USD will likely stay bullish
We have prevented a couple of views on Cable today, the bearish note from RBS being the most eye-opening. The view is a fundamental one, it is however worth noting that technically speaking the uptrend is still largely intact:
"In broad terms the market here faces difficulties at 1.7000 but will effectively remain within an inter-monthly bullish trend unless/until 1.6250 support gives way.
"Moreover even if Sterling values do sell-off in such a manner at some point subsequent erosion would probably prove to be corrective only from an intermediate to longer term standpoint. Values already spurned a more obvious opportunity to top out significantly mid-way through last year and thus any near to medium term failure on approach to 1.7000 will most likely only delay rather than abort an eventual upside resolution in any case."
11:29: Pound euro downtrend could still be on
Commenting on the pound euro rate is Bill McNamara at Charles Stanley:
"Not long ago I highlighted the fact that sterling’s advance relative to the euro was stalling as a result of its failure to break above the long-term downtrend – and that is still the case (at least, for now). There was hardly any change in this pair last week although my view is still that the pound will break above resistance before too long."
11:05: Fade the Cable
Emmanuel Ng at OCBC sees further weakness ahead in GBP-USD:
"Our preference remains to fade any near term upticks ahead of the busy calendar this week and with the pair now below its 55-day MA (1.6583). The pair may be given to further capitulation in the near term given that the latest run of data releases last week failed to broadly surprise on the
upside.
"Note however that any further heaviness in the EUR-GBP may well limit cable’s downside. In the interim, any breach below 1.6535 by the GBP-USD may incite a further slide to test 1.6500."
10:43: Outlook vs the NZ dollar
Citigroup have updated on the technical outlook for sterling against the NZ dollar:
"NZD may outperform as the RBNZ is expected to keep raising the interest rate in 2014 and 2015.
"Technical Analysis: GBP/NZD may test lower to 1.9085 and then 1.8871, with resistance at 1.9519."
10:07: RBS warn that the best is now over
Paul Robson at RBS gives a stark warning to the sterling bulls out there:
"The pace of recovery is slipping behind the BoE's assumed 0.9% qoq run rate for GDP growth and this suggests the good news story for the UK may have become fully priced. At the same time, concerns over growing imbalances may become more widespread. The current account deficit has continued to widen and rampant retail sales growth is a worry, sucking in imports.
"Over the next 12 months, rising political risk and less favourable moves in rate spreads may see more intense focus on the twin deficits. This is a potentially toxic cocktail for GBP. Establish tactical GBP/USD shorts."
08:27: Pound sterling (GBP) lower
The GBP is on the defensive right across the board on Monday morning. Losses are being seen against all the majors. There is little appetite for the UK currency at the present moment.
A quiet week ahead: Bank of England to do nothing, NIESR and Manufacturing data on tap
With the disappointing PMI series out of the way we are left with little economic data with the ability to drive the pound, with only a few pieces of economic data scheduled for release and the Bank of England decision on interest rates and asset purchases.
We do have the Bank of England meeting this week but it will be an absolute non-event.
Of the economic data being released this week, the only notable pieces are the manufacturing production, trade balance and NIESR GDP estimate.
In a weekly preview note Alpari UK say:
"Manufacturing activity has picked up quite a bit in the last six months, with only one of these being a negative month. While this is not something to write home about, it is a sign of progress. This progress is expected to continue in February, with production rising by 0.3%.
"The NIESR GDP estimate can provide fairly useful insight into the quarterly performance of the economy, especially at the end of each quarter with it being released shortly before the official first estimate. As long as this number falls roughly in line with the growth figures of the previous quarters of 0.7-0.8% I think people will be relatively happy with this."
Latest exchange rates:
The pound to euro exchange rate is 0.11 pct lower at 1.2081.
The pound to dollar exchange rate is 0.06 pct lower at 1.6566.
The pound to Australian dollar rate is flat at 1.7840.
The pound to New Zealand dollar rate is 0.13 pct down at 1.9252.
