GBP/USD ‘Cable’

Cable has been the rank outperformer of Sterling pairings, with the UK currency rallying strongly against its US peer. The dollar has been subdued as the so-called ‘reflation’ trade loses steam, while traders begin to question just how much further the Fed’s tightening cycle will take interest rates. However, the pound itself has come under pressure as macroeconomic data during Q2 came in much weaker than expected, seeing Cable come off its highs.

Brokers are currently negatively biased for Cable’s prospects according to Bloomberg data, with over 70% of brokers expecting downside to the current price, while the average target price is 2.1% lower than its current level. Recent updates, however, show brokers are neutral to bullish on prospects, with BoA Merrill Lynch (6 Jul) forecasting a $1.25 end-quarter figure while Macquarie (3 Jul) are more bullish, expecting $1.32 by the end of Q3.

Events: Fed – 26 July, 20 Sept; BoE – 3 Aug, 14 Sept; Brexit – ongoing!

GBP/EUR

As Brexit negotiations begin in Brussels, this currency pairing will likely ebb and flow alongside the latest developments in talks between the UK and the European Union, reflecting the standing of each of the parties at any given time. While the UK is looking to gain ‘frictionless’ access to the single markets, EU officials are likely to drive a hard bargain. Since the announcement of the UK election in April, the pairing has fallen to a 2017 low reflecting a weaker position for the UK in Brexit negotiations. Having traded predominantly in a tight €1.13-€1.14 range since the UK election result on 8 June, which way will the pairing break when the next catalyst arrives?

Brokers are currently negatively biased for GBP/EUR prospects, with 60% of brokers forecasting downside to the current price, while the average target price is 0.4% lower than the current trading level, as suggested by Bloomberg data. Recent updates from brokers agree with this negative outlook, with Wells Fargo (5 Jul) offering the greatest upside with a €1.149 target, while HSBC (30 Jun) expects €1.068 to be reached by the end of Q3.

Events: ECB – 20 Jul, 7 Sept; BoE – 3 Aug, 14 Sept; German Election – 24 Sept; Brexit – ongoing!

EUR/USD

While the Brexit pairing of GBP/EUR may be the hot topic in FX markets, how the European currency trades against its US peer will be a key indicator of how the market is reacting to the latest Fed rhetoric. The US Dollar Basket, a trade weighted basket of the greenback against its peers, fell to its lowest level since September in Q2. It’s no surprise then, that EUR/USD traded a fresh 12-month high of $1.145 in the quarter. Will the rally continue in Q3?

Brokers are negatively biased for EUR/USD prospects, with Bloomberg showing three quarters of brokers have a lower target price than its current price, while the average target price is 1.5% lower than at present. As before, brokers have differing forecasts on the Euro’s prospects, with Macquarie (3 Jul) once again bullish with a $1.17 end-Q3 target, while Day By Day (26 May) remain bearish, expecting a $1.02 figure by the end of the quarter.

Events: ECB – 20 Jul, 7 Sept; Fed – 26 July, 20 Sept; German Election – 24 Sept; Brexit – ongoing!

On the following three pages, we take a closer 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 in 2017?