Daily Forex Fundamental Overview

Fundamental Analysis

Key highlights of the week ended August 19

Euro Zone

The Eurozone's economic powerhouse has confirmed an economic deceleration in the second quarter of 2016, the second reading of the gross domestic product showed. The growth rate of gross domestic product reached 0.4% or an annualized rate of 1.7% during the second quarter of 2016, confirming the preliminary estimate published by German statistical authority Destatis earlier this August. It marks a sig nificant slowdown from the first quarter, when the economy expanded at a quarterly clip of 0.7%, as the mild winter weather propelled construction. The outcome is in line with an earlier GDP flash estimate. Meanwhile, the continent's traditional exporting powerhouse saw outbound shipments rise 1.2 per cent in the second quarter, with imports slipping 0.1 per cent. Overall, net trade was the biggest single contributor to economic growth, adding 0.6 percentage points to GDP. In addition, domestic consumption, which has been powering the economy for the last 18 months, added 0.2 percentage points, while investment contributed negatively, deducting 0.4 percentage points from the GDP numbers.

US

Existing home sales in the United States dropped more than expected last month after rising for four consecutive months, offi cial figures revealed on Wednesday. According to the National Association of Realtors, sales fell 3.2% to a seasonally adjusted annual rat e of 5.39 million units in July, compared to the preceding month's reading of 5.57 million, whereas market analysts anticipated a 0.3% decline to 5.52 million in the reported month. US home resales were 1.6% lower than a year earlier. Nevertheless, analysts view the drop in existing home sales as temporary and expect these sales to pick up soon. Home resales declined in the Northeast, the South and the Midwest; however,ju mped 2.5% in the West. Meanwhile, the number of unsold homes on the market increased 0.9% in the seventh month of the year, whereas sup ply fell 5.8% and the median house price advanced 5.3% year - over - year to $244,100. Other data released by the Energy Information Administratio n on Wednesday showed a surprise increase in US crude oil inventories. According to the report, US crude stockpiles added 2.5 mill ion barrels in the week ended August 19, following the 2.5% drop seen in the previous seven weeks and surpassing the 0.5 million - barrel fall foreca st. After the release, Brent oil declined 1.5% and WTI dropped 1.8%, both trading below the $50 level.

New Zealand

The RBNZ signalled that it will need to cut the cash rate at least once more to get inflation back to the target range, but e mph asized the limited impact monetary policy can have in such unusual global economic circumstances. The Reserve Bank of New Zealand's current fore cas ts for the economy imply 35 basis points of more easing, but emerging data would determine if more or less stimulus than this will be re qui red. Governor Graeme Wheeler says that their present judgement is that the current interest rate track, involving an expected 35 basis poin ts of further interest rate cuts, balances a number of risks weighing on the economy while generating an increase in CPI inflation back tow ard s the midpoint of the 1% to 3% target range.

EUR

"Looking ahead, growth looks set to slow significantly in the second half of the year as uncertainty related to the Brexit vote takes its toll. The monthly output indices suggested that activity fell in May and rose only slightly in June, with almost all of the second quarter's growth coming in April".

- Scott Bowman, Capital Economics

The UK economy grew more than expected in the Q2, despite the country's decision to leave the European Union, official data showed on Friday. According to the Office for National Statistics (ONS), the UK GDP advanced 0.6% during the reported period, compared to the preceding quarter's 0.5% rise. On an annual basis, GDP expanded 2.2% in the Q2 of 2016. Both reading came in line with analysts' expectations. The data also showed that services and production jumped 0.5% and 2.1%, respectively in the Q2. In Contrast, construction dropped 0.4%, whereas agriculture fell 1.0%. Furthermore, household consumption increased 0.9% over the Q2, rising for 6 consecutive quarters. Year-over-year, household consumption climbed 3.0% in the reported quarter. Government spending declined 0.2% on a quarterly basis, but increased 0.8% on a yearly basis. Investment was the largest component of Britain's GDP in the Q2, growing 1.4% quarter-over-quarter and 0.9% year-over-year.

Despite promising UK retail sales figures and the lowest unemployment rate since June 2008, the Brexit vote negatively affected business and consumer confidence, as the manufacturing activity gauge fell to the lowest level since 2013 and the services activity dropped to its lowest level since 2009.

USD

"The only real area of strength was consumer spending. The general view is that things are going to pick up in the third quarter".

- David Sloan, 4cast Inc.

The US economy expanded less than initially estimated in the Q2 of 2016, fresh data revealed on Friday. According to the second estimate released by the Commerce Department, the US GDP grew 1.1% over the Q2, whereas the first estimate suggested that the economy rose 1.2% in the reported quarter; however, the reading came in line with market forecasts. The US economy grew 0.8% in the Q1 and 1.0% in the first half of 2016. The downward revision was mainly driven by higher imports and weak spending by state and local governments. Meanwhile, Personal consumption growth was revised up to 4.4% from 4.2% reported earlier, the fastest pace since the Q4 of 2014. The data showed that corporate profits dropped 1.2% in the Q2, following the 3.4% gain seen in the Q1. Core personal consumption expenditures, which exclude volatile food and energy prices, rose to 1.8% from 1.7%. Separate data released by the Commerce Department showed the US trade deficit fell to a seasonally adjusted $59.3 billion last month, compared to June's $64.5 billion gap, whereas market analysts anticipated a slight drop to $62.3 billion in July. Exports jumped $2.9 billion, while imports declined $2.4 billion. Wholesale inventories rose 0.2% month-over-month and 0.3% year-over-year. Retail inventories fell 0.4% on a monthly basis, but increased 4.2% on an annual basis.

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