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