EUR/GBP Monthly Fundamental Forecast – March 2016

Outlook and Recommendation

The EUR/GBP  is trading at 0.7815 seeing a rise of 2.75% in February as the pound took a big fall after Prime Minister Cameron announced a June 23^rd referendum.

Its Brexit, Brexit and Brexit this month. Nothing else will matter in the UK until the June 23^rd referendum. In the meantime, the BoE will be of little consequence. In his testimony to parliament this week, Governor Carney indicated that the BoE has the tools to take further action in the event that conditions warrant, suggesting “we could cut interest rates towards zero. We could engage in additional asset purchases, including a variety of assets … [or] we could shorten our policy horizon over which we wanted to return inflation to target.” This is a much weaker statement than that which accompanied the Inflation Report release just three weeks earlier

In February, the two most important sentiment indicators for the German economy – the PMI for manufacturing and the Ifo business climate – sent a forceful signal by declining significantly. For both indices the moving averages are also in decline, which in the past has proved a highly reliable herald of economic downturns. The criteria used by the Ifo Institute itself, such as the three-month rule or the Ifo business cycle traffic light, confirm what is indicated by the moving averages.

The economy received a good boost last year from the euro’s temporary weakness. The real external value of a notional D-mark in spring 2015 was down over 8% on the same period a year earlier which meant that at times the impetus from the forex market was on a scale last seen at the turn of the millennium.

The global economy has obviously lost momentum, and the global manufacturing PMI is now only just above the 50 mark, which serves as the demarcation line between contraction and expansion. One prime reason here is the problems besetting China and other emerging markets, which are suffering now from the after-effects of a long period of cheap money. And this situation is unlikely to change much in the near future. In China, the process of correction in the oversized construction industry and overly high corporate debt has not even begun.3 As a result, demand for German products from emerging markets can be expected to increase even more slowly in the foreseeable future than it already has been doing.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Upcoming Economic Events that you should be monitoring:

March 1, 2016