Last week was extremely volatile, following big moves in equities- and shocking moves in oil futures prices which dragged the whole market down with it. The only winner last week was the U.S Dollar, as investors flocked to it for a safe haven during the volatile week.
What was positive to see was that Pound to Euro rates have remained in the same range, not just throughout last week, but through the last month we have remained between 1.12-1.14. I do feel this exchange rate is underpriced right now, and feel that due to the lack of resolution within the EU that the GBPEUR exchange rate should be much higher- and this is still something that may come into fruition over the coming weeks.
It is a similar story with Pound to Dollar exchange rates (Which of course affects all pegged prices, AED, INR etc)- we have been rangebound between 1.22-1.26 throughout April- and again, I feel this is underpriced. I am personally bullish on Sterling- the reason for this is that the U.S Dollar is being artificially strengthened with QE measures, that will eventually have no more effects- and the Euro should definitely be weaker than what it is right now. I am personally long GBPUSD from 1.23 and do feel this has legs to continue upwards moving forward.
Another factor that many of us have forgotten about is Brexit trade talks (Not sure why they are still going on through a pandemic…) but it seems that Michel Barnier only had negative things to say on Friday about how negotiations were going… the UK has until 30th June to decide whether they want to extend or not- I personally thought this was likely, it seems the UK is taking a harder stance at the moment, but given the pandemic we are all now in, I do think an extension would be sensible as everyone has more serious things to be considering- also, due to the current situations economically within Europe- it is making the negotiation easier for the UK as the Eurozone keeps failing to come up with a fiscal policy to stabilise their economy- and talks of Italy wanting to leave the EU again are tipping the scale in the UK’s favour.
Last, of all- EURUSD has become an increasingly weak currency pair- with prices going into the 1.07 area on Friday due to U.S Dollar strength. Many analysts are predicting 1.05 as the low for this pair, and I do see a strong case for it in the short term, but for now- 1.0750 seems to be a strong support area. Majority of our clients have been purchasing forwards between 1.10-1.14 and these opportunities will arise again, but the short term does look negative for EURUSD exchange rates.
For those of you who follow the blog you know, I like to keep a macro view on everything- and that is what I have explained above, there are various data releases this week which will affect the exchange rates- however, in my opinion, we are not going to see any positive economic data until lockdowns are lifted- so to be honest, take them all with a big pinch of salt!
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