Daily Forex Fundamental Overview

Fundamental Analysis

EUR

"This positive development provides a good foundation for private consumption continuing to play a key role in economic growth this year"

- Rolf Buerkl, GfK analyst

Will Germany be able to push the growth in the whole region and ease pressure on Mario Draghi, who is looking for alternative measures of stimulating growth? The German economy represents for more than one-third of the 18-nation bloc’s GDP and the latest data suggests the economy is resilient even amid growing uncertainty surrounding European economy.

Earlier this week strong GDP data and German Ifo business climate provided a boost to the single currency, pushing it towards this year’s high. On Wednesday Gfk market research company said its forward-looking measure of consumer sentiment advanced to 8.5 into March, climbing higher for an upwardly revised 8.3 a month earlier. It was the highest level since January 2007 and above the consensus forecast that stood for 8.2, bolstering the case domestic private and business consumption will drive growth this year. During the last year private consumption rose more than twice as strong as the overall economic output. The Gfk company predicts consumption will jump by 1.5% this year. Moreover, the whole economy is forecasted to expand 1.8% on the back of stronger exports and domestic demand.

Positive data from Germany can have a strong influence on the ECB, as policymaker will gather on March 6 to decide whether to stay pat on its policy or to make another market intervention.

USD

“While expectations have fluctuated over recent months, current conditions have continued to trend upward and the Present Situation Index is now at its highest level in almost six years”

- Lynn Franco, director of Economic Indicators at the CB

Statistics from the labour market, housing sector, consumer spending, industrial production and the number of building permits– they all have been soft in the recent months. And yet, the Federal Reserve tries to persuade markets the economy is building up steam and the pace of growth is sufficient enough to taper further.

The key unemployment rate fell to 6.5%, and according to St. Louis Fed President James Bullard, the economy is just 0.6% away from full employment. Moreover, another hawk from Dallas Fed– Richard Fisher backed his comments. The interesting thing is that markets are buying it. The U.S. stocks have taken back 100% of the losses made in the first two month of this year. Analysts already expect Friday’s report to show a 2.5% growth instead of 3.2%. If the Fed considers the economy is firing on all eight cylinders, then the U.S. policymakers are out of touch.

Meanwhile, according to the Commerce Department, sales of new U.S. homes jumped to the highest level in more than five years, easing concerns of a slowdown in the housing sector. Sales surged 9.6% to a 468,000 annualized pace, overshooting expectations of analysts and reaching the highest since July 2008. December’s sales were revised upwards to a 427,000-unit pace from 414,000 reported previously.

GBP

“This provides some hope that the recovery is gaining breadth even if, as we expect, overall growth slows during the course of this year. Note net exports were positive, but with the pound up and Europe still fragile its persistence may be challenged.”

- George Buckley, an economist at Deutsche Bank AG

Trade, consumer spending and investment boosted Britain’s economy to a fourth straight quarter of solid growth, suggesting the recovery is getting more balanced and broader-based, supporting the case for the rate hike.

A report from the ONS showed gross domestic product expanded 0.7% in the final quarter, meeting the previous estimate. On an annual basis, however, the economy posted a 2.7% growth, revised down from 2.8% reported in the initial estimate on January 28. The second estimate revealed the expenditure side of the economic output, while the first projection showed only the output components of the GDP. The largest contribution was made by the household expenditure that posted a 0.4% growth over the period, adding 0.3% to the overall growth. The Pound was expectedly resilient after the release of the data, as traders already knew about disappointing figures from the retail sales.

The most welcoming sign is a pickup in investment, as the government seeks for a more rebalanced recovery rather than boosted by a decline in the savings rate. Business investment climbed 2.4% in the final three months, reaching the highest level since Q1 2013 and marking an 8.5% jump in investments since the same quarter a year before.

CHF

“The SNB has concluded the sustained strong increase in mortgage loans and the prices of Swiss residential properties has caused the imbalances to become even greater in the current low interest-rate environment”

- The Swiss government

The U.S. Dollar– Swiss Franc cross has been moving towards strong support at 0.8853, suggesting the pair can be highly volatile soon, keeping in mind two possible scenarios– a penetration of the level and a bounce back. As always, the pair is mostly driven by fundamental news form the world's largest economy rather than the Alpine country. Even a release of UBS consumption indicator had a minor impact on financial markets as investors are focusing on Janet Yellen’s testimony later this week.

A monthly report from the UBS bank showed a gauge of consumption trends slowed to 1.44 points in January, compared with 1.81 points a month earlier, with the widespread weakness among business sectors. The situation in the retail sector deteriorated significantly, while the number of new car registration fell 7% over the period, falling to a three-and-a-half year low of 20,000. The only bright spot was the subindex of consumer confidence that managed to stay above its long-term average.

While consumer and producers prices are still struggling to grow, stronger domestic consumption can boost economic growth. Currently, the government projects a 2.3% for 2014 and a 2.7% growth in 2015. These forecasts and bold statements from Swiss authorities raised speculations the cap on the Swiss Franc will be removed soon.

NZD

"Because the economy is still in an early recovery phase and momentum is still modest outside of the Canterbury rebuild, interest rate increases have the potential to slow the economy sharply”

- Shamubeel Eaqub, NZIER principal economist

The Reserve Bank of New Zealand will meet on March 12 to assess the domestic economy and make a decision whether to start raising interest rates, becoming the first developed country to do so or to prolong a period of accommodative monetary policy. The majority of analysts believe policymakers will increase its key refinancing rate up to 2.75%, while latest central bank’s comments are increasing concerns markets can be disappointed, leading to a massive sell-off of the kiwi.

The domestic economy is recovering from its long and deep economic recession that started in 2007 and after almost seven years of economic stagnation the economic recovery is under way. Official projections are standing for a 3% expansion in 2014. The economy is lifted by stronger consumption, investment as well as surging Canterbury reconstruction. The reconstruction project will contribute to almost 30% of the GDP growth during this year.

According to the New Zealand Institute of Economic Research (NZIER) the RBNZ will increase borrowing costs from 2.5% in March 2014 to 4% by March 2015. However, the central bank will be monitoring not only performance of the domestic economy, but also keep an eye on emerging markets. Nevertheless, the revision of the RBNZ’s monetary policy is just a matter of time.