GBP/USD forecast - page 13
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Most GBP Depreciation Is Over; Where To Target?
The BoE decision on Aug 4 was more dovish that expected and triggered a new round of GBP Weakness. So far the actual impact on the economy of the vote is very uncertain but estimates indicate a potential recession in H2 this year. Consequently, the GBP has reacted by falling almost 18% in trade weighted terms since last year. Most measures of GBP-valuation start to flag severe under-valuation.
With an adverse impact on the economy already discounted and the valuation deviating by almost 2 std dev, we belive most sterling depreciation is over. However, the GBP will remain weak as long as uncertainty regarding the economy remains.
Currently, we expect EUR/GBP to trade ar 0.86 by the end of Q3 and 0.85 by yea-end. Our GBP/USD forecast points slightly lower towards 1.26 by the end of Q3, before ending 2016 at 1.27.
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What are the banks going to forecast for the pound now?
One swallow doth not a summer make but two gets the scribblers scribbling
The forecasts for the quid have been heavily tilted to the downside. Our friends at Efx News keep the score card for forecasts and here's the current averages;
Given that a lot of investors take what the banks say as gospel to make their trades, if they start to raise their forecasts, we're going to see more of those record shorts bailing out. It doesn't matter what you or I think about this data point or that data point, you can't ignore that there are a ton of shorts and that the main risk is skewed towards a squeeze.
Forget trying to guess where prices may or may not go but learn to feel the market and what it's thinking. Before the jobs data it was thinking that the UK is bearish. Now after that and the retail data it might not have such a bearish view. Does that mean the pound won't go down? Of course not but right in this moment (however long or fleeting that may be) shorts will be sweating more than longs and will remain sweating until something changes. That could be a comment from a central banker or US data point. That could be five minutes away, a day a week or a month. We just don't know but that's trading. One minute the shorts are sailing along merrily, the next they're in choppy seas while the buyers take the upper hand. Markets are always two-way but most of the time there's bias. That's what makes trends. If there's no bias and both sides are equally, we don't trend and go sideways. Trends are there on every chart. Whatever time frame you trade on, know your trend.
The problem we have is judging who's in charge at any one time and when they're not. Things like todays data make that distinction clear, at least in the very short term. Fill your boots with shorts if this move fits with your strategy but be a touch more cautious given today's sentiment.
Look to buy dips if that's your play but be wary about where you pick those dips and know the levels where you'll be called wrong. Define your risk so that if you are wrong, you're in control of what you may lose and not a deer in the headlights.
Finally, don't do what Credit Suisse did and chase a trade. On August 8th they put in an order to short at 1.3155 with a 1.2800 target and 1.3238 stop. On the 15th they moved the order to 1.3000, stop to 1.3102 and tp to 1.2752. On the 16th they got filled, and today....
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Nordea: British Pound has Bottomed, Better Exchange Rates Against Euro, Dollar Ahead
Pound Sterling has shot higher against the world's ten largest currencies as UK retail sales data suggests analysts were far too pessimistic over the impact of the Brexit vote. Can the move translate into further gains?
The UK currency rose sharply on Thursday the 18th of August as latest retail sales figures show the UK consumer did not even bat an eyelid at the EU referendum result.
Growth of 1.4% in July beat analyst expectations for a reading of 0.2% to be delivered while annual growth comes in at 5.8%.
The retail sales figures make it a three out of three beat for the UK economy with inflation and employment data by the ONS showing analysts to have been too pessimistic on the UK economy's post-Brexit vote prospects.
Indeed, the wallets were agape as shoppers hit the high streets and online stores in a spree not seen since 2014:
British Pound is Week’s 3rd Best Performer, US Dollar is 3rd Worst, Euro & Swiss Franc Beat the Rest
European currencies topped the global exchange rate leader board in the week gone by, but can they repeat their strong performance in the coming week?
It was the Swiss Franc that topped the board as the G10’s best performer in the week ending 19th August.
The Franc was followed by the Euro and then the British Pound.
At the bottom of the piles was the Australian Dollar. It would seem that Moody’s warning that it may cut Australian banks’ credit rating spooked investors.
The Norwegian Krone recorded a small decline against the US Dollar.
The Dollar struggled as 10-year Treasury yields rose just 1bp this week, all of which happened on Friday the 19th, “so that they are ending at the top of a very narrow weekly range. That lack of yield support for the dollar drove cash into emerging market bonds,” says Kit Juckes, a strategist with Societe Generale in London.
The Dollar was undermined by a mixed bag of US economic data and FOMC minutes that continue to suggest a glacial pace of Fed tightening.
Even hints from San Francisco's John Williams and New York's William Dudley that we shouldn't be completely ruling out a September hike were unable to fire the Dollar’s engine.
Pound Sterling was helped by stronger than expected employment and retail sales data, triggering short-covering.
The data has seen many analysts have to consider the negative forecasts they laid out for the UK economy following the Brexit result as a result of the strong run.
If the Bank of England follows suit and see less downside risks to the economy then they could well call time on quantitative easing once the current round is complete.
This would be a GBP-supportive occurrence that could well stimulate a broader period of recovery.
Lloyds Warn Against Expecting a Strong GBP Rebound
The Pound’s effective exchange rate edged up by around 1.4% over the past week – from what was the weakest effective rate since the financial crisis.
Following the strong showing in the UK retail sales data many commentators reflected that the referendum result has not had the negative impact on the economy that many had been assuming.
We warned that a pro-Remain financial commentators and analysts were potentially guilty of tilting their forecasts too low.
Perhaps they are right, and vindication will come in subsequent data releases?
Pushing the latest warning are the economics team at Lloyds Bank who say,” this optimism seems rather premature.”
“Until additional ‘hard’ data allow the prospective growth deceleration to be gauged, the outlook remains highly uncertain, not least judging by the unusually wide dispersion of economists’ forecasts for UK growth,” says a note from the bank.
It will only be in September when we get the next set of economic statistics that can help determine whether Lloyds’ pessimism is correct.
The only notable data on the calendar for GBP in the week ahead is the second estimate of UK GDP for the second quarter.
This is not likely to be a market mover as 1) it is essentially old news and 2) it covers the pre-referendum period.
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