Sterling Seller Strategy – GBP/EUR, GBP/USD and GBP/AUD
GBP/EUR – Sterling is suffering due to the uncertainty surrounding Brexit. One of the key points of negotiation is whether or not the UK financial sector will have access to the single market following Brexit. This is proving to be particularly difficult. Theresa May’s proposal was for the UK to continue to have access to the single market and to abide by the highest standards of international laws. This was declined by Brussels.
The French wish to attract UK financial services to Paris in order to benefit from tax revenue. Financial services is the biggest form of tax revenue in the UK. French politician, Bruno Le Maire has stated the UK will have to utilise a legal mechanism know as equivalence. Equivalence allows countries outside the EU to have limited access to the single market, this is dictated by Brussels and can be revoked at any time. Hardly a stable situation for UK based financial services.
Until there is more clarity on this situation I feel GBP/EUR will stay below the 1.15 resistance point. 1.15 has only been available for very small windows of opportunity if you are a Sterling seller. If you have to move short to medium term I would suggest performing your trade should interbank hit 1.14 .
GBP/USD – The Federal Reserve interest rate forecast is crucial to the value of the Dollar. Federal Reserve representatives have indicated there could be as many as three rate hikes this year, which bodes well for the green back. Personally, I would be surprised to see as many as two rate hikes from the FED if you consider recent history despite the recent change in Fed chair from Janet Yellen to Jerome Powell. It is being swept under the carpet that a rapid rise in interest rates has the potential to cause serious problems in the US economy.
The most drastic effect of a steep rise in rates would be the increase in pressure on US tax payers to repay current debt. Keep a close eye on this situation if you have a trade involving USD.
If you are selling Sterling short to medium term I would consider anything above 1.40 to be a decent trading level.
GBP/AUD – The Interest rate outlook from the Reserve Bank of Australia (RBA) is quite a negative one and it looks as though there is unlikely to be any change in interest rates this year. Despite that there is still resistance on GBP/AUD at 1.80 and considering the uncertainty surrounding the Brexit situation if you are buying the Aussie with Sterling set your target rate as 1.78-1.79 to move.
This blog is geared toward Sterling sellers, Sterling buyers feel free to drop me an email and I will provide a trading strategy.
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