Sterling unmoved by election started gun


This Week's Highlights

  • Sterling unmoved by election started gun
  • US Dollar strong ahead of employment report
  • Euro ruffled by data and lack of Greek conclusion

FX Market Overview

So the UK electioneering starts today. I can't have been alone in thinking it had already started but I was wrong. Brace yourselves for 6 weeks of hollow promises, chest thumping and pandering to small children - especially photogenic ones. Will we all believe the promises? No. Will it change the way the majority of us vote? No. Why bother? Good question.

In the real world, after a week which showed zero inflation in the UK but growing retail sales, we get a week which includes UK mortgage and credit data, the final economic growth figure for Q4 and a smattering of construction and manufacturing indices. We also have the last trading day of this quarter and the start of the next. We had the credit and mortgage data this morning and whilst consumer credit levels rose less than expected, mortgage approvals beat the forecasts. That is positive for the Pound. All other data releases have the potential to cause volatility but, barring unforeseen incidents, Sterling is probably in pause mode for the duration of the election campaign period; twitching only when the polls show a shift.

The US Dollar has slipped a little as well but in the overall scheme of things, it is still remarkably strong. This week is awash with speeches from Federal Reserve Chairmen and women. These will all be scrutinised in search of evidence of upward pressure on interest rates. That follows last week's change of tone in the FOMC meeting minutes in which the word 'patience' was omitted. IF the Fed is starting to plan rate hikes, the US Dollar will gain further strength; so knowing when they might make that all important first rate rise decision is very important for traders and investors alike. The US employment situation is a key part of the Fed's collective thought process and, to that end, we get the March Employment report on Friday.

The euro has a hectic week ahead; this morning's data includes the closely followed German inflation data but we will get employment data, inflation figures from other Eurozone states and a selection of manufacturing indices as the week progresses. The more commanding story is the unfinished business over the Greek debt crisis. Greek officials are digging their heels in but Germany seems to have a better grip. We will await an outcome with interest but it is weighing on the value of the Euro.

And remember this is a short week for the UK and EU markets, so Thursday could well prove to be volatile as traders square their books ahead of the 4 day break. That period of low volumes in the foreign exchange market is also an opportunity to place automated orders at advantageous levels in the hope of sufficient volatility over the break. 

Away from the financial markets but in a supermarket, a couple who went to eat curry and chips at the Morrisons store in Cambourne, Cambridgeshire on their first data have just got married....in the Easter egg aisle. Rebecca Wooller married Blake Green in the store where they first met last September. In the report I read there was no mention of checking each other out but perhaps there should have been.

Currency - GBP / Australian Dollar

GBPAUD

A drop in the price of iron ore weakened the Australian Dollar overnight. That drop in the price of Australia's major commodity export product was driven by a slowdown in China; something we are familiar with, bu8t the impact is much more broadly felt. I suspect the Sterling – Australian Dollar exchange rate would be higher were it not for conflicting signals from members of the Bank of England and for the impending UK General Election. These factors will weigh on the value of the Pound but there is still scope for another rally to A$2.00 against the pound within the current trading channel. That target remains worthy unless or until the Pound drops below A$1.88. That marks the bottom of the current trading range, so movement below there would be a game changer. ....or a direction changer, to be more precise.

Currency - GBP / Canadian Dollar

GBPCAD

Sterling's woes at the hand of BOE members and in response to the upcoming election are having an impact on the Sterling – Canadian Dollar exchange rate. Nervousness over the potential for a very messy coalition is hampering the Pound but that is exacerbated in this instance by strength in the Canadian Dollar. The loonie (as the CAD is known) is gathering some strength through association with the US Dollar and through a little bounce in the value of Canada's oil exports. The GBP-CAD rate is trapped between C$1.93 at the top and C$1.82 at the bottom. A break of either r end of the range will change things significantly so beware.

Currency - GBP / Euro

GBPEUR

Having ventured forward to test 2007 levels the pound ran out of steam last week. The fall back in the Pound's value can be variously attributed to the onset of a general election, profit taking, the unsettling lack of agreement between members of the BOE's monetary policy committee et al. In essence, sterling had had a very health bout of strength and a period of consolidation or maybe reversal was inevitable. But ...the Pound found support around €1.35 and is above that level now. As long as nothing unforeseen befalls the Pound, we ought to see further gains on the weeks ahead and another rally to test €1.40 is not out of the question. This all changes though if €1.35 is breached because that would take this pair back into the trading channel it occupied from 2009 until last month.

Currency - GBP / New Zealand Dollar

GBPNZD

The channel that has contained this pair for the last 2 years is pretty clear to see on the chart above. That shows that we currently have good buying interest in the Pound around NZ$1.94 and good interest in buying NZD at NZ$2.07. So now that we know that, it becomes quite straightforward to target your orders to take full advantage of this volatile pattern. It would be easy to see Sterling rallying quite hard if there were rumours of a decisive victory for any party in the general election but that seems unlikely. 

Currency - GBP / US Dollar

GBPUSD

The US Dollar is the currency du jour and that is very evident from the strength it is showing against the Pound and euro in particular. $1.46 support is holding at the moment so there is scope for another rally in the value of the Pound. However, with talk of early US interest rate hikes and a 6 week countdown to the UK election, there is plenty of scope for a dip in this pair to $1.44; levels not seen since 2010. Please also remember that the UK is on holiday for 4 days this weekend and that US employment data will be released in the midst of that. What I am saying is, if you have a requirement, there is a very strong argument to place an automated order into the markets to get the most out of the inevitable volatility.

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