Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The controls are being lifted. They will end within a time frame of January 2014. The goal right now is to create the conditions for growth and tackle the serious problem of unemployment, to stabilize the financial system.”

- Nicos Anastasiades, Cyprus President

After almost a year of strict government regulations and becoming the first EU country to seize bank deposits and impose capital controls in order to avert a financial collapse, Cyprus President Nicos Anastasiades pledged to lift all restrictions on capital movement in January. After entering the Euro area in 2008 Cyprus has been living through a severe economic crisis and last week the country was approved another 1.5 billion euros tranche by the Eurogroup. This is a part of the 10 billion aid confirmed earlier this year. While risks for austerity programme and economic recovery are still high, Anastasiades stressed out the country should now focus on creating the appropriate conditions for economic growth.

At the same time, Cyprus neighbour, Greece is suffering from a 48-hour stoppage, as people are protesting against the planned civil service cuts and forces transfers. The trigger is a part of bailout conditions for the next 1 billion euros tranche, under which the government should replace 25,000 civil servants on a reduced salary before they will redeployed or fire. While a partial private-sector is also planned, the government points out the necessity of these reforms, as public sector has grown too large over the last decade. Greece Prime Minister Antonis Samaras also claimed the budget deficit will soon be wiped out and the economy will be able to reach pre-crisis levels in six years.

USD

"We could begin later this year, but even if we do that, the subsequent steps will be dependent on continued progress in the economy”

- Ben S. Bernanke, Fed Chairman

Nothing. This is what Ben S. Bernanke decided to do, solidifying the standing as the most activist Fed Chairman in history. By a 9-to-1 vote, the policy-setting FOMC yesterday opted out from reducing $85 billion of monthly asset purchases, catapulting stocks to record highs and triggering the biggest rally in Treasuries in two years as investors repositioned for a more accommodative central bank. The Fed cited rising mortgage rates and reduced federal spending as headwinds that might undermine economic recovery in the world’s largest economy. However, during a press conference Ben Bernanke reiterated that the bank might still wind down its purchases before the end of the year, but this will largely depend on whether U.S. growth and pace of hiring show a more sustainable strength. Fed Chairman also highlighted that the bank would not raise short-term interest rates any time soon. The reaction in markets was immediate and sharp. The U.S. Dollar weakened to a seven-month low versus major peers and price of gold soared more than 4%.

A separate report from U.S. statistical offices reflected a decent weakness in the nation’s property market, as number of housing starts and building permits came weaker than expected. The U.S Commerce Department said there were 0.9% more new housing starts in August, reaching a 891,000 annual rate, but down from analysts’ predictions of a 917,000 figure. Moreover, building permits tumbled 3.8%, indicating a lack of drive heading into September.

GBP

"Over the month the evidence was consistent with a recovery at least as strong as that expected at the time of the August Inflation Report. Were the recovery to falter, the case for further asset purchases would be stronger.”

- Monetary Policy Committee minutes

British policymakers moved further away from adding any additional stimulus to the economy in September, minutes of the last policy meeting showed Wednesday. The nine-member Monetary Policy Committee voted univocally to keep the current pace of the stimulus programme and interest rates unchanged, also saying they remain and will stay in wait-and-see mode for the next couple of months. Currently QE stands at 375 billion pounds and the key rate at 0.5%. The logs mean that one of the main reasons for this pause in the U.K. central bank’s activity stems from bright news on the domestic economy and neighbouring Eurozone.

Amid signs of economic strengthening the BoE upgraded its growth forecast, saying the nation’s GDP will rise 0.7% in the third quarter, up from 0.5% expected in August. As none of nine policy makers saw a case to expand the pace of current stimulus measures, the likelihood that growth will continue gathering pace for the rest of the year is high. Earlier this month, Mark Carney pledged to keep borrowing costs at current level until the unemployment fall to 7% or lower that is not expected to happen until late 2016. However, investors are betting due to solid economic performance it could happen earlier, thus there is a possibility of a rate increase sooner than expected.

CHF

“Switzerland’s progress comes in tandem with slightly more optimistic expectations for economic growth in the euro zone”

-Credit Suisse’s Maxime Botteron and Lena Jaroszek of the ZEW

As it was widely expected the Alpine country is building up steam, and after a stronger-than-expected GDP figures in the second quarter, the economy is likely to accelerate even further, supported by improvement in consumers’ and investors’ mood. A gauge of investor confidence soared to its five-month high this month, as the nation’s biggest trading partner, the Eurozone, emerged from its longest-ever recession. The ZEW Center for European Economic Research said an index of analyst and investor expectations, which is designed to predict economic development in the next six months, jumped to 16.3 in September from August’s 7.2, hitting the highest since April. The figure can be a welcoming sign for the economy as survey’s respondents are highly informed by virtue of their job, hence any changes in their mood can be interpreted as a signal for future economic activity.

Later this week the Swiss National Bank is gathering to decide whether to introduce any changes in its policy, however analysts are claiming the SNB is likely to hold interest rates unchanged at record-low levels, as they are still concerned about muted inflation. While Swiss authorities are also expected to keep its cap on the Swiss Franc, this all adds up a likely drop in Franc’s value and its weakness against the single currency is widely expected to accelerate during the next couple of weeks.

AUD

"There is a very serious deterioration in our budgetary situation. Nevertheless, I want to stress that we will bring the budget back into surplus as quickly as we responsibly can, consistent with the election commitments that we’ve given.”

- Tony Abbott, Australian Prime Minister

Under a new government the Australian economy should begin to flourish due to structural reforms, pledged by the newly-appointed Tony Abbott, the Conference Board Leading Economic Index suggests. On Wednesday Tony Abbott has sworn in as the nation’s prime minister, saying the government should stark working immediately. His 19-member cabinet, which is one of the most experienced in history, according to Abbott, is going to start their work from the discussion of the carbon tax. Abbott is planning to introduce a direct action plans instead, under which subsides will be spread directly to farmers and companies to reduce their emissions.

Supported by an improvement in the economy and brighter prospects, Australian leading index, which is designed to predict the direction of the economy, climbed 0.3% in July, recovering from a 0.2% drop a month earlier. A measure of current economic activity, however, fell 0.2%, following a 0.1% increase in June. Even though the latest data are indicating Australia is still struggling to gain the momentum due to a drop in mining projects, subdued consumption levels and unemployment rate at a four-year high, new government, and optimism among Australians, the $1.5 trillion economy is likely to recover in the foreseeable future.