Good morning

Looks like we are going to end the week with GBP holding onto to recent gains. GBP/USD currently trading at 1.7030 and EUR/GBP at 0.7995. After the roller-coaster week GBP has had, I think there will be a number of GBP traders breathing a sigh of relief. It was touch and go earlier this week when Gov. Carney gave the market a scare and GBP retraced gains, only for his comments yesterday to re-enforce his original comments about rates being hiked in Q4 2014.  I know I might sound like a parrot (repeating myself) but trust me when I say, Gov. Carney and the MPC members will have to think long and hard and be absolutely sure when they raise rates. The last thing they need is to hike rates and see a fall in GDP and contraction in the UK economy. Disaster!!

so my main themes for the coming months are: (1) A stronger USD, (2) A weaker EUR, (3) A Stronger GBP (ag EUR), (4) a weakening of EM currencies, specifically, ZAR, TRY, BRL, MXN, (5) Lower US Treasury prices (in line with a US rate hike), and finally (6) US and UK rate hikes in 2015 (I reckon).

In line with the above, and as we start to see a clearer picture of when rates will likely be hiked, the market will begin to sell the USD treasuries  curve, and at the same time for the USD to outperform other G7 currencies.   Coupled with the drastic actions the ECB is having to take to delivery the much needed policy measures, there is an expectation that all these pieces of the puzzle will start falling into place as soon as September.  I have said that 1.3480 in the EUR is critical and a break will open significant loses thereafter. So if you looking to hedge (buyers of EUR/USD) try hold out for now because chances are you will get a better opportunity. On the other hand, GBP importers (selling GBP buying foreign currency) these are awesome opportunities for you and in my opinion you should be trying to hedge a good proportion of your book now.

If your business requires you to BUY EUR & SELL GBP, again my view is that the GBP will continue to strengthen and so for now if you are able to sit on your hands and withstand any intraday volatility, then try doing so. That is my opinion based on the price action I have seen over the past fortnight. Having said that if you prefer not to wait then hedge up to say 35% of your book and wait on the rest. Having spent many years trading FX Options my philosophy has always been simple, “it is never too early to take profit, purely because I don’t have a crystal ball to second guess the market”.  in plain English, yes there are times when it is good to let your profits run, but there are also times when you have a decent profit which should be locked away.

That’s all for today. Hope you have a magic Friday and a pleasant weekend. See you Monday



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