EUR/GBP Fundamental Analysis June 27, 2012, Forecast

Analysis and Recommendations:

The EUR/GBP is trading at exactly 0.8000, give the man a cigar.. exactly 8000. The pair lost 0.0028 as the euro weakened as we get closer to the circus center ring, known as the EuroFin Summit. The news flow, has been more like a Hollywood drama, each party and every minister making public statements and leaking details and data and nothing has started as of yet.

The UK’s deficit, which was wider than expected as a result of reduced tax receipts, adds to existing sovereign credit risk given that the UK remains on outlook negative from two of the three major rating agencies (albeit with a AAA rating from all). 

But markets paid very little attention to eco data; it was all about news flow.

There is building hope that the EU summit draft plan will provide details of early steps towards a fiscal union. The EU would serve as a united finance ministry for all 17 countries and those who breach agreed to fiscal or debt targets would cede some sovereignty and become subject to penalties, including fines. In addition it suggests a study of ‘eurobills’ and the European Redemption Fund (our preferred long-term solution) as possible interim step. There is also discussion of the ability to recapitalize banks directly from the ESM and a common overarching EU bank supervision agency. A plan along these lines, would likely be positive for EUR as it removes a significant portion of the uncertainty and provides clear guidance as to the long term vision and path for the Eurozone.

What is amazing to an outsider is why wasn’t all of this put in place a year ago, why the fiscal union that Germany’s Merkel and France’s Sarkozy promised?

The markets see this as more grand schemes with little results and little in the short term to turn the economy around or to stop contagion for infection the global economies.

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 up to the data analysis and information in our weekly reports.

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