Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“Greece is turning a page … all the international organisations agree that next year, 2014, will be the year of recovery for the Greek economy”

- Greece's Prime Minister Antonis Samaras

Greece Prime Minister Antonis Samaras tried to spread a message of optimism among the market participants during the International Fair by pledging there will be no new austerity measures and that the economy is likely to exit the recession in the next year. Greece has contracted 23% since 2008, and so far it has received two bailouts totalling 240 billion euros. However, according to the nation’s official, six years of recession are moving to an end. His comments were supported by the recent GDP report that showed the economy shrank 3.8% in the second quarter - the smallest decline since the outbreak of the country’s worst financial crisis. Samaras also pledged that in case the pace of current progress will persist, the country will succeed in shaving its debt burden, the biggest in the 17-nation economy.

At the same time he also does not exclude the possibility of additional help from international lenders, who are already identified a hole of at least $11 billion in the struggling economy next year, as tax revenues are off projections due to weak consumption and spending. Despite some signs of optimism, Greece’s statistics service said the nation stayed in deflation territory in August, as consumer prices tumbled 1.3% from the same month a year earlier, prolonging a streak of negative data. Moreover, Greek industrial output plunged 8.1% on year in July.

USD

“The labor-force participation rate fell to 63.2 percent, a level not seen since Jimmy Carter was president. The failure of President Obama’s policies are becoming clearer day by day.”

- Kevin Brady, chairman of Congress’s Joint Economic Committee

The latest good news from the labour market may be bad news for the Fed’s Chairman, as U.S. officials are considering when to begin the widely-discussed tapering of its stimulus programme. On Friday figures showed the overall jobless rate fell to 7.3% in August, hitting the lowest since December 2008, while the economy added 169,000 jobs. However the drop in unemployment rate was provoked not by a significant improvement in the labour market, but as more people dropped out of the labour force. Hence, the labour-participation rate, reflecting the share of working people either holding a job, or even looking for a new one, stands now at a 35-year low. Therefore, when taking the jobless rate adjusted on the number of people out of the labour force, the indicators would surge up to 9% or even more. Moreover, there are now 7,911,000 Americans, who are working part-time, but willing to have a full-time job.

Digging under the surface, it might be concluded that much of the recent drop in unemployment rate is nothing but a distorted statistics on a back of Obamacare legislation that led to a massive jump in part-time jobs. While the Federal Reserve established the jobless rate as the lodestar for its policy, the true picture of the job market is much worse than it seems.

GBP

"These are still the early stages of recovery. Avoiding an unintentional and premature tightening of financial conditions,” while “staying the course with our deficit-reduction plan will help counter domestic risks to growth.”

- U.K. Chancellor of the Exchequer George Osborne

During the speech in East London Britain’s Chancellor George Osborne claimed the economy has turned the corner and vindicated the government’s pledge to pushing ahead with austerity measures. Even though the pace of growth of Britain's economy in the second quarter has been upwardly revised due to strong trade, and activity in construction and manufacturing sectors, Osborne stressed out that a change in current course or any plans to abandon his programme of spending cuts would have a disastrous effect. Since 2010 this austerity programme has been the government’s cornerstone policy.

His comments also come a month after BoE’s Governor Mark Carney introduced his forward guidance and pledged not to increase interest rate before late 2016. However, despite this commitment and various attempts to assure market participants there will be no shifts in policy any time soon, investors are still betting rate will rise before this date. On the other hand, Osborne said this message has started to get through to consumers and executives, which in turn should strengthen confidence. Nevertheless, on Monday yields on the U.K 10-year government bonds inched higher 2 basis points, reaching 2.96%, the highest since 2011.

JPY

“The question for BoJ policy is now whether governor [Haruhiko] Kuroda will support the government by adding easing to counter the expected fiscal drag at the beginning of next year”

-Miwako Nakamura, analyst at JPMorgan

The world’s third largest economy expanded at a significantly faster pace in the second quarter than it was projected earlier, adding to hopes of an economic recovery and increasing chances Shinzo Abe will press ahead with a contentious sales tax hike. Figures from the Cabinet Office showed Japan’s gross domestic product expanded 0.9% during the period, translating into an annualizes growth of 3.8%. This figure is 0.3% stronger than the previous estimate, while the official projection of the first-quarter growth was also marked higher, hitting the annualised rate of 4.1%, from 3.8% expected earlier. These figures are revamping confidence in Abenomics, policy based on three pillars- increased fiscal spending, structural reforms and rapid monetary easing. So far the set of measures has already helped to lift consumer prices 0.7% in July, while Japanese exporters benefited a lot from the increase in monetary supply as domestic currency lost almost 20% of its value against the greenback this year alone.

The better-than-expected figures come also at a time when the Prime Minister Shinzo Abe is considering raising the rate of sales tax, or the so-called consumption tax. With some of advisers urging to delay the possible increase in order not to jeopardize the economic revival, upbeat fundamentals may play the decisive role in the beginning of October, when Abe will decide whether to allow the tax to rise from current 5% to 8% next April.

CHF

"The year-on-year growth rate of Swiss Gross Domestic Product (GDP) in the near future can therefore be expected to be positive”

- The KOF institute

After a stronger-than-expected growth figure last week, Swiss statistical office posted mixed data on Monday, with jobless rate remaining on hold, while retail sales unexpectedly dropped. The State Secretariat for Economic Affairs said the nation’s unemployment rate stood at 3.2% in August, unchanged from the previous month, while the unadjusted jobless rate came in at 3%. However, the number of jobless people rose slightly, as there were 129,956 people out of the labour force in August, 1,440 more than in the previous month. On a yearly basis the indicator climbed higher 10,133. In addition to that youth unemployment rose by 2,566 reaching 20,197. Another report showed sales at retailers in the Alpine country increased at a notably slowed pace in the middle of summer, reflecting weak domestic demand and unwillingness to spend. On a working-day adjusted basis retail sales rose 0.8% in July, significantly less than the 2.3% gain recorded in June. Core retail advanced 0.6%, following a 2.2% increase in June.

While measures done by the Swiss National Bank helped to stabilize consumer prices and GDP grew 0.5% in the second quarter, outpacing analysts’ projections of a 0.3% growth, the recent figures are reflecting consumers’ and businesses’ concerns over the economic outlook. As the economy is facing high risks that can dampen economic recovery, companies are not hiring more people, while consumers are increasing spending.