EUR/GBP Weekly Fundamental Analysis, April 25 – April 29, 2016 –Forecast

The EUR/GBP settled at .7805, down 0.0135 or -1.70% even though in his April 21 press conference, European Central Bank President Mario Draghi did not suggest an increase in stimulus measures any time soon.

On Friday, traders largely reacted to a worse than expected German purchasing managers’ index survey. This news may be an indication that the European economy is worsening and that negative rates are not working. The lower price action also suggests that if Euro Zone data continues to be weak, the central bank could ease further.

Last Thursday, the Euro finished in negative territory after the ECB held its key interest rates unchanged. During the press conference that followed the interest rate announcement, Draghi warned that Euro Zone inflation might turn negative again in coming months. Since the central bank undertook the measures it did in March, the broad financing conditions saw signs of improvement, the ECB said. Draghi also stressed in the conference that the central bank hadn’t talked about helicopter money.

The British Pound showed some weakness at the start of the week with the EUR/GBP spiking to .7993 on April 18, but after that surge, it was downhill all the way. An acceleration to the downside took place on Friday after a report broke about the Bank of Japan. The report said the Bank of Japan is considering expanding its negative rate policy to bank loans and could cut rates further.

The UK labor report showed the Average Earnings Index for the last three months was up 1.8%, below the 2.1% estimate. The Claimant Count Change came in at 6.7%, worse than the -11.9K estimate. This component of the report represents the change in the number of people claiming unemployment-related benefits during the previous month. Unemployment increased by 21,000 to 1.7 million between December and February, the first increase since the May-June period of last year, according to the Office for National Statistics. The unemployment rate remained unchanged at 5.1%.

For the most part, traders blamed “Brexit” on the increase in unemployment claims and weaker-than-expected wage growth, saying employers are not will to make major employment decisions until after the referendum on June 23.

The size of the reaction to the downside by the EUR/GBP at the end of the week suggests that traders may already be preparing for negative interest rates from the ECB especially since it was a report that the BoJ was considering another round of negative rates that broke the market sharply lower on Friday.

Momentum is clearly to the downside and there doesn’t appear to be an event scheduled for this week that could trigger a sudden turnaround by the EUR/GBP. Any rally is likely to be fueled by technical factors since it appears that investors are already building in more stimulus from the ECB. We could see another spike to the downside on Friday if the BoJ decides to implement more aggressive stimulus than currently expected.

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.

Major Economic Events for the week:

Monday, April 25, 2016

AUD        ANZAC Day Holiday

NZD        ANZAC Day Holiday

Tuesday, April 26, 2016

Wednesday, April 27, 2016

Thursday, April 28, 2016

Friday, April 29, 2016

  JPY        Showa Day Holiday

Government Bond Auctions

Date Time       Country           Auction

Apr 25 N/A UK 2.5% July 2065 Gilt (Syndicated tap)

Apr 25 11:35 Germany Eur 1.5bn Apr 2017 Bubill

Apr 26 11:10 Italy Holds BTPei auction

Apr 26 19:00 US Holds 2-year note auction

Apr 27 11:03 Sweden Holds bond auction

Apr 27 11:10 Italy Holds CTZ auction

Apr 27 11:30 Germany Eur 1bn 2.5% Aug 2046 Bund

Apr 27 19:00 US 2-year FRN, 5-year note auctions

Apr 28 11:10 Italy Holds 5yr/10yr bond auctions

Apr 28 19:00 US Holds 7-year note auction