Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“While we agree that the ECB will likely struggle to meet this [2% CPI] goal, we would suggest to wait until after the December TLTRO before drawing strong conclusions.”

- ING Group NV

The European Central Bank has held the first round of the Targeted Long-term Operations program, which is aimed to lend extremely cheap money to Eurozone’s banks. They, in turn, are supposed to start lending this money to real economy. It total, monetary policymakers managed to allocate 82.6 billion euro for the present first step. The four-year loans will have an annual interest rate of 0.15%. As a final result, the ECB intends to improve banks’ liquidity, end low inflation period in the single currency area and overcome deflation fears among economists. In total, the pan-European monetary regulator is planning a 1 trillion euro large support package, while the TLTROs are only one part of it. All actions are assumed to boost the balance sheet of the ECB to 3 trillion euro.

The next round of cheap money injections into the system are scheduled to take place in December. Moreover, the policymakers are discussing the idea of buying privately owned assets under the long-awaited quantitative easing program. Purchases of government bonds are on the table as well, but the ECB will pay the main attention to private assets. Meanwhile, a number of analysts doubt in success of August operations, which are most likely to give any effect in the long-term. In addition, some banks may postpone the period of taking money from the central bank, while their balance sheets are being reviewed by the ECB.

USD

“There are still too many people who want jobs but cannot find them. Too many who are working part time but would prefer full time work. And too many who are not searching for a job but would be if the labor market was stronger.”

- Janet Yellen, Fed Chairwoman

Labour market in the United States is showing more signs of improvement, as claims for unemployment benefits in the country dropped to 280,000 for the week ended September 12, the lowest level in two months. Therefore, the four-week average level for jobless claims fell to just below 300,000 level. Moreover, the total number of people, who receive benefits, plunged to seven-year low of 2.43 million. According to the majority of experts, household spending and rising corporate orders forced companies to hire new employees. Also, the unemployment rate is likely to decrease in the nearest future, as initial jobless claims are only considered as an early sign of growing employment. The Federal Reserve, in turn, is waiting for the job market to perform even better, before they finally raise interest rates. During its regular monthly meeting on Thursday, the Fed pointed not only on importance of general health of job market, but also on stable increase in full-time jobs’ offerings, while too many new positions are being created as part-time ones at the moment.

Opposite to healthy labour market, construction sector in the U.S. declined in August, as new housing starts dipped 14.4% to reach 956,000 on a monthly basis. The biggest decline was seen in the West of the country, where the industry plummeted 24.7%. Alongside, building permits slipped 5.6% to 998,000 level.

GBP

“Feedback from retailers suggested that sales were increased as consumers sought to buy high powered vacuum cleaners before the EU energy saving regulation came into force at the end of August.”

- Office for National Statistics

Retail sales in the United Kingdom advanced in line with the majority of forecasts by 0.4% in August. Excluding fuel, they were up by 0.2%. Among volatile products, car sales jumped 2.1%, while furniture deliveries jumped as well amid beginning of the new study year. However, annual growth disappointed markets, as it reached 3.9%, up from 2.5% in July, while economists expected an increase above 4%. In Scotland alone, however, retail industry registered a 0.3% decline in August, compared with the year earlier. An overall positive momentum was provided by sales of electrical equipment, namely vacuum cleaners, before restrictions on powerful appliances entered into force. Moreover, prices at major retailers dropped 1.2%, on average, while food costs decreased marginal 0.1%. In general, retail sales registered their 17th month of gains.

Additionally to statistical data on retail sales, analysts’ attention was focused on Scottish independence referendum yesterday. Voters in Scotland were likely to vote against independence and stay as a part of the United Kingdom. Until the last days of campaign, opinion polls showed a result, which would be too close to call. The data for Friday’s morning showed a “No” lead of around 55%. At the same time, U.K. Prime Minister David Cameron and his political opponents have already promised more devolution powers for Scotland to take place after the referendum.

CHF

“The SNB will continue to enforce the minimum exchange rate with the utmost determination. It is prepared to purchase foreign currency in unlimited quantities, and if necessary, it will take further measures immediately."

- Swiss National Bank

Trade balance in Switzerland registered a decline in August for the first time since May, as deliveries to country’s largest economic partners dropped. Trade surplus reached 1.39 billion francs, compared to 3.90 billion francs in July. Exports slid 3.4% on the annual basis to hit 14.859 billion francs mark, as German-only purchases went down 10.2%. Germany is Switzerland’s biggest trade partner, while the whole EU accounts for 60% of country’s exports. International sales of electronic products and machinery went down 7.3%, while deliveries of pharmaceuticals and chemicals plunged 5.5%. Watches’ exports, in turn, added 0.7% in real terms to 1.493 billion francs. At the same time, some weakness can be explained by a fewer number of working days in August of the current year versus the previous year.

In addition to trade data on Thursday, the Swiss National Bank held its quarterly meeting the same day. It decided to keep the main three-month Libor interest rate unchanged in the 0-0.25% range, despite wide expectations of the negative rate among analysts. Moreover, the SNB left the Euro-Franc exchange rate cap at 1.20 level. However, Bank’s officials admitted that economic conditions worsened and franc is still very expensive. For improvement purposes, the SNB is ready to intervene on the foreign exchange market, with purchasing unlimited amount of foreign currency.

JPY

“There is no major change in the trend of exports failing to pick up. We still can’t hope for exports to offset a drop in domestic demand and help bolster capital spending.”

- Norinchukin Research Institute Co. in Tokyo

Opposite to Swiss international trade data, Japanese statistics posted an improvement in August of this year, as negative balance decreased to 948.5 billion yen from 1.02 trillion yen a month before. While overseas shipments went down 1.3%, imports dropped 1.5%, which led to better figures. Nevertheless, the net export is still unable to provide enough support to economic recovery in times, when Japan needs it the most. This April the government raised the sales tax from 5% to 8%, as it resulted in falling consumer spending and consecutive GDP plunge, the largest since the Great Recession. Despite that, Shinzo Abe’s government is planning to increase the mentioned tax further to 10% in foreseeable future to narrow the budget gap. With weak domestic demand in the country, the cheap money policy of the Bank of Japan is set to bolster capital spending and investment, which may become the growth engine in the mid-term. The OECD has already lowered Japan’s GDP growth forecast for this year to 0.9%, fearing negative influence from rising consumption taxes on the economy.

The Bank of Japan, however, is pointing on waning impact from April’s tax hike, while economy of Japan is recovering gradually. The speech by BoJ’s Governor Haruhiko Kuroda on Thursday made it clear that the regulator is ready to push even more stimulus into the economy, if it shows no considerable signs of rebound.