Daily Forex Fundamental Overview

Fundamental Analysis

EUR

"Then we will also review Greece's programme's possible continuation and financing. The debt sustainability can be improved, for instance, by extending the loan periods."

- European Commissioner Olli Rehn

German Finance Minister Wolfgang Schaeuble warned out that Greece is likely to ask for another bailout in order to plug a forthcoming funding gap, just weeks before German crucial national elections. His comments are expected to have a negative impact for voters, as Germans are uncomfortable with the size of European country bailouts, for which they are paying a huge share. German Chancellor Angela Merkel, however tried to calm down people by saying it is too early to talk about new funding. The amount of new tranche is expected to be far smaller than the previously granted 240 billion euros, which Greece received from international lenders- the International Monetary Fund (IMF), the European Central Bank and the European Union. Last month, the IMF said Greece is likely to need about 11 billion euros during the next two years.

Also Wednesday, European Commissioner Olli Rehn pointed out that there are still other ways to keep Greece’s aid programme going, citing extension of the repayment schedule on existing loans as a possible solution. The Troika will review the aid programme later in the autumn.

USD

"Housing will be an important part of the recovery through the rest of this year and into 2014”

- Gus Faucher, senior economist at PNC Financial Services Group Inc.

The number of sales of previously owned homes in the U.S. soared to the highest level since November 2009, as more buyers entered the market before the expected increase in mortgage rates. According to the National Association of Realtors, sales of existing homes remained above the five-million threshold for the third month in a row, rising 6.5% last month, hitting 5.39 million units, and beating market projections of a 1.4% advance. The previous month’s figure was downwardly revised to 5.06 million. As the average rate on a 30-year mortgage crossed 4% mark, and is expected to climb even further, buyers were forced to close contracts as fast as possible.

Meanwhile, the minutes of the FOMC’s July 30-31 meeting provided some clues on potential timing of slowing the Fed’s bond buying scheme. A few central bank’s officials believed that reduction of QE3 might be needed soon, while the majority assumed that changes in the monetary stimulus programme was not yet appropriate, highlighting the necessity of being patient and assessing economic data before deciding on any critical move. Almost all of 12 policy makers were broadly comfortable with Fed Chairman Ben Bernanke’s plan to moderate the pace of asset purchase later this year if the economy continue to strengthen.

GBP

"The recent pick up we’ve had in the economy should definitely help. We should start to see some of the softer revenues that we’ve had pick up."

- Victoria Clarke, an economist at Investec Securities

British public sector net borrowing increased last month, leading to a first budget deficit since 2010, despite predictions of a budget surplus. On Wednesday, the Office for National Statistics said that excluding financial interventions, public sector generated a deficit of 0.1 billion pounds, figure much lower than a surplus of 2.9 billion predicted by analysts. Figures also showed that net borrowing jumped to 488 million pounds, compared with surplus of 823 million in the same month a year earlier. Underlying tax receipt surged 3.4%, lagging behind a 3.7% gain in spending. The ONS also mentioned that there is currently a constantly increasing expenditure across the board, a figure which expected to be revised in the nearest future. The fact that the economy has gathered some momentum in recent months should help Chancellor of the Exchequer George Osborne to meet his budget targets. At the same time, the Office for Budget Responsibility, predict a shortfall of 120 billion pounds for this fiscal year, a figure equal to 7.5% of GDP.

In a separate report the Confederation of British Industry said that the U.K. manufacturing sector logged the fastest growth in output since June 2012 in three months to August. The balance for export order books stood at -7%, while output volume growth climbed to 16%. Companies now expect output to increase at an even faster pace in the upcoming months, as economic growth quickens.

JPY

Kuroda’s comments suggest he really wants an increase in the sales tax as scheduled. Fiscal reform is needed for Japan’s economy.”

- Yuichi Kodama, chief economist in Tokyo at Meiji Yasuda Life Insurance Co.

Bank of Japan Governor Haruhiko Kuroda supports Shinzo Abe’s plan to raise the sales tax, as the world’s third largest economy is strong enough to withstand a possible hike, backing the measure before commission meet next week to discuss the impact on economic growth. Kuroda suggests the economy will not lose speed if the sales tax is raised as planned, while according to latest estimates Abe is likely to abandon his plans to raise the sales tax up to 8% from current 5% in April, and instead increase it by just 1% a year, a move that possibly should soften the blow to consumption. BoJ Governor together with the nation’s Finance Minister Taro Aso and other members of the government will attend the panel meeting and the fact that Abe’s closest advisers Koichi Hamada and Etsuro Honda are among the panel members is adding to signs the decision will be taken.

Also Wednesday Kuroda pledged to adjust quantitative easing if downside risks from domestic shifts in policies or further slowdown in overseas economic increased. However, stable improvement in personal consumption and investment are reflecting the positive effect of Abenomics, suggesting BoJ’s QE is heading in the right direction. Governor has once again reassured market participants in his readiness to achieve the 2% price stability target as planned even despite various risk factors.

AUD

"The outlook in Australia remains soft and uncertain. The knock-on impact of a slowdown in mining and resources investment is expected to affect overall activity levels. "

- Mark Adamson, chief executive of Fletcher Building Ltd

Australia’s Conference Board Leading Economic Index (LEI), which includes several economic indicators to try to forecast the nation’s economy direction, inched down in June. According to the report, the index fell 0.2% after the flat reading in the previous month amid political uncertainty and consumers’ fears over job security. Building approvals, share prices, and the sales to inventories ratio made the largest negative contribution to the index, offsetting the increase in index levels seen for yield spreads, money supply, gross operating surplus and rural goods exports. For the first half of 2013, the index rose 0.8%, reversing the drop of 1.1% between June and December 2012. Meanwhile, the Coincident Economic Index, a measure of current economic activity, rose slightly in June, gaining 1.0% in the six-month period through June, compared to the 0.1% increase for the previous six months.

The RBA and the government are trying to bolster growth in the weakening economy through various fiscal and monetary policy stimulus. Two weeks ago the central bank cut its key-lending rate by 25 basis points to boost demand in the economy. Currently Australian interest rates are at the record low level in more than 50 years. The bank’s rate cuts have led consumers to be slightly more positive about economy, but optimistic sentiment is yet to be felt by businesses.