FX Update – Sterling Soft & CADJPY – A Perfect Storm

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By: Stuart Cowell

GBPUSD & CADJPY, H1

Cable is softer today after last week’s rally. The pair posted a 17-day high at 1.2486 on Friday, which was the culmination of a rebound from the 35-year low that was seen on March 20th at 1.1409. The pairing is currently trading in the upper 1.2300s. About two thirds of the rebound from the major-trend low reflected a broader turn lower the Dollar, at the influence of the Fed’s policies, while the broad stabilization in global markets last week gave the Pound a chance to rebound, having underperformed markedly during the recent acute periods of risk aversion.

Despite the impressive rebound, the Pound still remains, at levels prevailing, down by about 7% versus the Dollar on the year-to-date, and by 6% and 7.5% down against the Euro and Yen, respectively, over the same period. Expectations are for the UK currency to remain vulnerable over the coming months. The coronavirus crisis is far from over, and we expect global markets to remain apt to risk aversion, despite massive global stimulus efforts, or at least unable to sustain rebounds, so long as major economies remain in a state of lockdown. This is a negative backdrop for Sterling, given the tendency for there to be a shortfall in foreign investment during troubled times to finance the UK’s current account deficit. Brexit also remains a blot on the Pound’s landscape with Boris Johnson’s government aiming to take the UK out of its special transition membership of the EU’s customs union and single market at the end of the year, which would put a large part of UK trade on less favourable WTO terms. We think Johnson will ultimately, however, opt for an extension in the transition period, rather than a softer weaker deal by December 31, unprecedented times persist.

Intra-day the most significant moves continue from Friday with CADJPY once again being the biggest mover down some (-0.92%) at 10:00 GMT. The pair was a big mover on Friday (following the BOC rate cut & weak Oil prices). It gapped lower on open to break Friday’s low (S1) 76.52 and moved to 76.20. Retraced to 200MA at 77.00 before turning lower again. MA’s aligned lower, RSI (38) weakening again and MACD still weak too, with Stochastics moving lower under 50 – H1 ATR 0.2820, Daily ATR 1.76.


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