Apologies for not writing the Blog over the past couple days…..
What a disaster!!! yes that is exactly how I would describe the state of GBP right now. So the wage growth numbers weren’t spectacular and perhaps they won’t raise rates until Q1 2015 instead of Q4 2014…so what!!! I think the market was SO LONG GBP that everyone decided to head for the exit door at the same time and liquidate. I still see this move as a temporary reaction to yesterday’s numbers and the desire for the market to clear out the longs before reaching a level where it will be time to get back on the horse. Bear in mind as well that we are in the height of the European Summer and historically during these months there is not a great deal of demand to hire and add staff. Come September I believe things will start to change dramatically and we will see the growth numbers that Gov. Carney is looking for.
The current level of 1.6680 represents an initial support level, a break will lead us down to 1.6625 which if it does get there represents as far as I am concerned is a GREAT level to get back in. I think the momentum (weakening) has slowed down and I think we could start to see a turn-around as the markets begins to build GBP longs and more importantly levels which I believe local exporters should be chomping at their arms to hedge and even take profit (after the recent GBP strength to 1.7190)
I for one do not believe the current weakness in the GBP will persist. It is not that I am talking my “book” but rather all other indicators remain GBP positive and more importantly one bad wage growth number will not stop Gov. Carney from potentially pulling the interest rates trigger towards the end of the year. Truth be told the longer he waits the MORE difficult it will be given that 2015 is an election year and NO sitting Govt. wants to see potentially vote loses from this move. So as far as I am concerned I see no reason why a hike can’t still happen AFTER Xmas.
EUR/USD takes a back seat trading in a narrow 1.3350-1.3400 range all day. Option Volatility has obviously suffered as a result with the front end of the curve off 0.25 in recent days. Again I must re-iterate my previous comments, EUR/USD is going south. When exactly is of course pure guess work, but I believe in a fortnight we will start to see some attempt to test the 1.30 handle. At the same time I think the GBP starts to recover leaving EUR/GBP back through 0.8000 en-route and back to test the 0.7900 levels we have spoken about on many occasions on this Blog. In EUR/USD 1.3300 (last hit Nov 2013) is my first pivot, followed swiftly by 1.3100 (last hit Sept 2013) on the way to break 1.3000. The next move will be swift (in my opinion) rather than a gradual tick by tick move lower. We are so “close” I see no reason the market will not have a go.