Good morning, hope you had a good weekend.

As I have been writing over the past few sessions, GBP has rightfully taken over as the gotta-be-in-it currency to hold. GBP broke the psychological 1.7000 level o/n (Asia session), settling back to  1.6980 as I write this. I would imagine that there were a fair number of knockouts and one touches (exotic options) with triggers at 1.7000 which when touched would have triggered sell orders in GBP. Safe to say the market will now digest the latest move and decide on the next bets which they feel are likely to offer the best returns. I have been VERY GBP positive calling for the moves when we were trading around 1.6800 and 0.8135. We have now breached both my targets (1.7000 & 0.8000).  With the cat out the bag after last weeks speech by Carney and a rise in UK yields, all eyes are now on the release of the BOE minutes on 18th June. There is likely to be more news and titbits about the “exact” month the market expects Carney & co to make their move.  The general consensus is around December/January, though I would hazard a guess and say the best bet is for Q1 2015 if anything. There is still a decent amount of time and data releases between now and then so while nothing is cast in stone it appears we are pretty set for the rate hike in Q1.

US stocks finished in positive territory on Friday, something which has not carried over to the European session. FOMC this week we expect ANOTHER tapering of QE by another $10bn.  At the same time we are expecting a downward revision of GDP, Unemployment and rising inflation. In my opinion the US will start to look to hike rates Q3 onwards, moving quickly to balance the economy.  As I have mentioned in previous commentary, PATIENCE is the key!! Carney, Yellen et al must tread carefully and make sure they pull the trigger on raising rates at the right time. The last thing they need is to jump the gun and then have to back peddle when it becomes obvious it was the wrong time.  in a nut shell, they must manage the markets expectations regarding the timing of the first rate hike in order to avoid and disorderly and potentially disastrous price moves.

So for now I am looking for EUR/USD to tap under 1.3500 (1.3525 now), GBP/USD to climb and break 1.7000 again moving to 1.7050-75 (1.6975 now), EUR/GBP to dip below 0.7950 testing the 0.7920/30 area (0.7967 now).

Have a good day ahead

Well well well. It is comforting to know that my comments over the past few days have been spot on. It has been a monumental move in GBP reinforced last night after comments by Governor Carney that US interest rates are likely to move higher sooner rather than later. They have no other option really. The economy is starting to show signs of overheating and one way to try slow it is to raise rates. They will as they said be gentle and let the economy absorb the hikes before deciding on the next move.  One thing is for certain, if Carney mistimes the hike he could potentially drag the UK back into negative territory so he will have to be absolutely certain the timing is right.

The housing market is leading their need to move sooner rather than later. I guess as i have said hot money has flowed out the USD and EUR and into GBP and this is adding fuel to the fire. They really have no other option. The conservative Govt. and their austerity package has worked. That is a FACT!”! They have reversed the negative trend and put the UK back on the map.  Now all we need is for England to win the World Cup and the job will be all but done (well it is wishful thinking).

So what now, we are through 0.8000 and from what i can gather there is an acute desire to try take it lower again as the market digests Carney’s comments. I believe we will see another move lower and the street is now looking for a target of 0.7900-0.7920.  Any bounce we believe I believe will be capped at 0.8050. However keep in mond for this to happen GBP/USD MUST BREAK 1.7000.  I have been saying the EUR/USD should test 1.3500 and if this is indeed the case this will be a catalyst for the move lower in EUR/GBP.

Here is a comment from a GBP FX trader I completely trust:

“- Carney’s speech last night has basically re-affirmed what we already knew , good data backed up by a very strong housing market is causing concern. The interest rate has become too comfortable after initially kick starting the economy with people’s new found wealth from lower mortgage payments. This has become the expectation now and needs to be addressed. Carney seems to be well in tune and seems to realise the problems  but due to the expectation of these low rates any move has to be well sign posted to allow people to re allocate household budgets, thus i believe any move will come a month after a Quarterly Inflation Report (next QIR is August then Nov). Cable after a quiet 2 weeks is now presented with 1.7000 again (1.6998 previous high) 1.7040 resistance above that,, EURGBP should still be the more volatile ccy pair support 0.7950-0.7920 resistance 0.8040”

Have a good day

Good morning,

The show must go on!!! I have been talking relentlessly about the strength of the GBP vs EUR & USD & CHF (mainly) and this trend is continuing unabated. We have touched on why I feel this trend is strong and why I feel it could carry on for the time being.  Anticipated interest hikes (May 2015) and strong numbers all point to the UK being the “place to be” or should I say the currency to hold. I have been telling everyone who will listen to me (and there are a few), how they should WAIT if they are BUYERS of EUR and on the flip side importers needing foreign currency (SELLING gbp).  Let me put it this way, if you need to hedge NOW if a great time to do it. While I nor anyone else i know can predict what will happen next, there are certainly signs that give us a good idea.  So on Monday I tweeted with EUR/GBP at 0.8090 to stay short eur’s and follow the trend. Opened this morning at 0.8040 (0.5%) move in your favour while GBP/USD has appreciated around 0.25%. I STILL FEEL strongly that the Pound will make another attempt on 1.7000 (vs USD) and that will potentially see EUR/GBP sub 0.8000 (1.2500).  So for now my advice, as an importer (sell £ vs buy $ etc) you are looking good. As an exporter (buying £) I would bite the bullet and hedge now. I guess there is no time like the present. Lastly as a buyer of EUR (sell £) again I like the trend lower and as I write this spot has already fallen 10 pips….

For the third  time in a row, the Central Bank of NZ (RBNZ) raised the cash rate 25bp to 3.25%. After hiking rates by 25bp to 3% in April, the RBNZ has raised the cash rate by a further 25bp to 3.25%. This is the highest cash rate since early 2009, although financial conditions are a little tighter than this would indicate, given that the RBNZ had estimated that the loan controls introduced late last year to take the heat out of the housing market had the same effect as a 30bp rate rise. I would assume Mr Carney at the BOE is looking and thinking, is this what I will have to do to stem the rise in the Housing Market!!!The RBNZ trimmed its forecast profile for short rates a little, but is still forecasting several more rate hikes, as early as July!!!

The rally in stocks slowed down overnight with S&P down 0.35% and Dow down 0.60%.  Do I fear this is the start of something else, absolutely not. Ask any seasoned trader and they will tell you, sometimes it’s good to cash in profits let the market settle back and jump back in. It is for this reason I think the day traders in all likelihood cashed in and are now looking at when next to get back in.

O/n the World Bank cut its global growth forecasts and some corporates downgraded their profits outlook. This added to the pressure we say in late NY trading. But keep in mind what I have been saying recently, the Central banks MUST WALK ON EGG SHELLS!! if they jump the gun and start raising rates (when they should have waited) it will all end up going back to 2010 and recessions. Keep a cool head and let corporates grow their finances and profits and then look to hike.

Keep an eye in Iraq and the security situation there. oil will be affected if matters take a turn for the worse, and that will be a real pain in the ear for corporates and the like as it cuts into their earnings. Also a rise in oil for net importers will add some negativity to GDP and raise inflation.

EUR/USD: still looking for test below 1.3500

GBP/USD: still looking for test of 1.7000

EUR/GBP: still looking for test below 0.8000 (1.2500)

AUD/USD: Needs to close above 0.9410 for test of 0.9450

USD/JPY: out the spot light to side trading really, gap higher?

The Pound continued its relentless drive vs the EUR as the markets begins to discount a hike in interest rates around May 2015. While this has been one of the reasons for the recent strength, another catalyst has been the recovery of the UK economy vs Europe and other 1st world economies. Growth rates are returning to levels seen pre-2008 with the IMF acknowledging that even they might have underestimated the recovery. With this backdrop and a potential hike in rates, money managers and the like have been moving cash out of the EUR (whose Depo rates went into -ve territory at last weeks ECB meeting) and instead ploughing cash into GBP. This is creating a knock-on effect for the FTSE where hot money is flowing. The housing market, and I should stress it is really within the M25 (highway) borders, has not helped matters and it is my opinion that even a hike in rates will do little to dampen the housing rally. Put it this way, if you are a money manager looking for returns where would you look!!! There is so little in the way of opportunity right now (and CB’s attempt a gentle landing of their economies) that your options are really limited to property, stocks and corporate bonds. I for one see this rally continuing for the time being as investors look for opportunities.

US equity markets ended flat last night with Europe opening flat to down overall. Non-farm payrolls continue to impress and this too is adding to the recovery we are seeing in the States. I for one do not see Ms Yellen raising rates before the end of 2015 giving the economy time to settle into a rhythm and finding support. I was always a firm believer that the worlds economies were so reliant on the US economy. Remember the old saying, if the US sneezes the world catches a cold. This is why it is so important that they get it right first time.

Lastly on the EM side, as the EUR begins its move down BE CAREFUL of a fall out (which I anticipate) and depreciation in ZAR, TRY, BRL, MXN, IDR, to name but a few. Huge correlation trades and any deterioration in the EUR will have a marked impact on the EM currencies above

EUR USD – looking to test 1.3480/1.3500
GBP USD – looking to test support at 1.6700
EUR GBP – looking to test below 0.8050
AUD USD – looking to test recent high of 0.9445
USD JPY – $ strength makes me look for 102.80