GBP/USD ‘Cable’

Of the two Sterling pairings covered in this report, Cable has been far and away the best performer of 2017, benefitting from the US dollar’s sell-off to 33-month lows. In fact, the currency pairing touched its highest level since the UK’s EU referendum in June 2016 in Q3, a 14% rally from its January lows. In recent weeks, however, Sterling has retreated towards the $1.30 mark, although has encountered some rising lows support. Will the pairing retreat further or will it make another charge at 2017 highs of $1.365 from support at $1.31?

Brokers are currently negatively biased for Cable’s prospects according to broker data compiled by Bloomberg, with almost two thirds of brokers expecting downside to the current price, while the average target price is 0.8% lower than its current level. Recent updates reflect the brokers’ contrasting views, with Credit Suisse offering a bullish target of $1.37 (25 Oct), while UniCredit expect the price to fall to $1.20 at the end of Q4 (6 Oct).

Events: Fed – 1 November, 13 December; BoE – 2 November, 14 December; Tax Reform & Fed Chair selection

GBP/EUR

The closest thing to a Brexit barometer that financial markets provide, GBP/EUR had been trending consistently   lower since the triggering of Article 50 in March until late August. However, the Brexit currency pairing looks to bottomed out in September following fresh post- ‘flash crash’ lows of €1.075, rallying to a high of €1.14 before retreating to support. Will the pairing take another leg higher or return to September lows?

Brokers are leaning towards a negative bias for GBP/EUR’s prospects, with 53% of brokers holding a lower target price for the end of Q4 than the current price according to Bloomberg data. These range from the bullish target of €1.25 from Day by Day (26 May) to Morgan Stanley’s bearish target of €1.02 (15 Sept). The most recent updates reflect the mixed outlook, varying from Credit Suisse’s €1.136 (25 Oct) to Barclays’ €1.111 (20 Oct).

Events: BoE – 2 November, 14 December; ECB – 14 December; Brexit – until March 2019 

EUR/USD ‘Eurodollar’

The best performing of the three pairings being analysed, Eurodollar climbed to a 33-year high in the third quarter due to a combination of Euro strength and Dollar weakness. However, the pairing retreated from its highs in September as the Trump administration made significant headway into proposed tax cuts, while the impact of an ECB quantitative easing taper has seemingly been fully priced in to the Eurozone’s single currency.

Brokers are neutral on EUR/USD’s prospects, with Bloomberg’s compilation of analyst data showing a 50/50 split on brokers’ target prices. These vary from the most bullish forecast of $1.25 by Nomura (19 Sept) to the most bearish target from Day by Day of parity (€1 = $1; 26 May). Notably, however, recent updates are relatively bullish. These include Credit Suisse’s $1.21 (25 Oct) and Credit Agricole’s $1.22.

Events: ECB – 14 December; Fed – 1 November, 13 December; Brexit, Tax Reform & Fed Chair selection

On the following three pages, we look at the technical indicators behind these three hugely popular currency pairings. What will you make of the analysis? Is your preferred currency pair set to move higher into 2018?