We support the prevailing trend in the competition on the outlook for the major European cross-country EURGBP, while at the same time introduce the reader to another method of forecasting rates - by asset valuation attractiveness.
Let's try to create an indicator that assesses the fundamental demand for the assets of a country (currency area). In its basis - a comparison of the speed of changes in demand, that is, the comparison of speeds rise or fall of stock indices, government bond yields, etc. The logic here is - the higher the investors about the outlook for the economy, the more likely they are to buy securities denominated in the currency of the economy, which in turn leads to outstrip demand for assets, and further - to the growing demand for the currency.
Omitting the description of the method of calculation (fully authoring), to derive the resulting schedule line and add to it for clarity cross EURGBP.
As can be seen from the graph, the demand for European assets formed at least in July 2014 (point "A" on the graph), and then begin to outstrip the growth of them in relation to the same UK assets. The reason for this lies on the surface - the completion of the program QE3 FRC US has led to a sharp drop in commodity prices, giving the advantage of countries - importers of oil, including the euro area. United Kingdom, despite the post-industrial way of the economy, remains largely underdeveloped countries, because the proportion of British companies in the market on a world scale oil is historically very high.
However, the pound, in contrast to the classical commodity currencies, has not begun to fall, and cross EURGBP continued to move in a southerly direction, that seemingly contradicts the described scenario. In fact, there is no contradiction here - remember that until August 2015. on the market there was a strong belief that the Bank of England is preparing to raise interest rates at the same time the Fed or with a small delay of 1-2 sessions, the inflation forecast ahead of the actual consumer price inflation, reaching 2.2%, while retail sales growth held steady at the level of 5% per month.
The pound thus subjected to two multidirectional pressures - on the one hand, the decline in prices for raw materials and thus reduce the attractiveness of the UK's assets, on the other - the confidence in the growth rate differential in favor of the pound.
However, by July 2015. (Point "B"), it became clear that inflation goes negative, and the rate of average wage growth slows down, leading to a drop in consumer demand. These factors point to the real state of the UK economy became apparent only to the market by the summer of 2015, which led to understand that the rate hike by the Bank of England will not.
Cross turned up after the revaluation, after the asset demand dynamics. The period from April to June (line "C-D»), it would seem, back demand for the British paper, but after Brexit European assets began to look more attractive again, and even a small pullback from the peak in August ( "E" point) until the trend is not changed.
At the moment, the British markets, primarily of debt and equity, do not look in the eyes of the investor attractive, say, the German, which means that the fundamental reason for the spread of cross-country is not yet formed.
Finally, to illustrate the situation with the help of non-linear channels, built with the help of the wave regression techniques. Interpretation is generally the same as when using linear channels, but allows you to clearly see the strength or weakness of the pulse.
Two of the three channels still deployed upward, indicating incomplete exhaustion of the rising pulse. Cross has a chance to reach the resistance area 0.8895 / 8951 before show signs of exhaustion, at least at this point to conclude that couples ready to deploy to the south prematurely.
According to the materials of Alpari
