Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“We now believe that Portugal's real GDP will likely rise on average by about 1.8% per year during 2015-2016, on average about 0.2 percentage points higher than we projected at our last review in November.”

- Standard & Poor’s

The Standard & Poor’s international ratings agency has increased its outlook for Portugal’s sovereign credit ratings, up from “neutral” to the “positive” one. The rating itself, however, remained unchanged at BB/B level. In its review, one of the leading rating agencies in the world along with Moody’s and Fitch, pointed on a continuous improvement in country’s finances and economic progress during recent times. Portugal, which was dependant on international (IMF and EU) support funds during the financial, economic and debt crisis peak-time, has now received a better forecast for economic growth in both years 2015 and 2016. On average, the S&P currently predicts the Portuguese economy to gain 1.8% this and next year, up around 0.2% from the agency’s previous estimate made in November 2014. Moreover, S&P sees the country’s national debt falling from 118% of GDP this year, down to 113% by 2018.

In the meantime, Mario Draghi testified on the European Central Bank’s monetary policy before the European Parliament’s Economic and Monetary Affairs Committee in Brussels on Monday. The ECB President gave a more positive assessment for the Euro area’s economy as growth is gaining momentum helped by the QE programme started March 9. He stressed that one of the key factors of economic recovery is ensuring that inflation does not remain too low for a long period of time.

USD

“We do have some potential for that today because the Fed funds futures path - the market based one - is a lot lower and shallower than the Fed's actual (summary of economic projections).”

- James Bullard, St. Louis Fed President

According to the President of the Federal Reserve Bank of St. Louis James Bullard, markets should expect a greater volatility due to uncertainty over the Fed’s future monetary policy decisions, especially when coming closer to the eventual increase of the federal funds rate. The same situation has already been observed in 2013, when the Fed decided to taper its bond purchases. It caused US Dollar’s significant rise, growing yields for US Treasury’s bonds and uplifted volatility on stock markets, while Mr. Bullard predicts it may happen again in the foreseeable future. Besides that, the St. Louis Fed’s President has separately underlined strength of the American currency. He said that the European Central Bank’s recent aggressive monetary policy decisions may have more influence on the Greenback’s exchange rate than expectations of the Fed’s rate hike. Along with that, he added that it is currently hard to predict, in which direction the euro-dollar exchange rate might go in the future.

Among other news on Monday, US existing home sales showed a worse-than-forecasted result for a fourth time in a row in February. Despite that, sales rose 1.2% to 4.88 million on the annualized basis during the previous month, up from the 8-month low of 4.82 million seen in January when they slipped as much as 4.9% on a monthly basis.

CNY

“If the official PMI also slides, it will reinforce that further policy stimulus will be needed to hit the 7 percent GDP growth target.”

- ING Group NV

Activity in the production sector of the world’s second biggest economy slipped surprisingly in March of the current year, reaching its lowest point in 11 months. The Flash Purchasing Managers’ Index, calculated by the HSBC Holdings Plc and Markit Economics, deteriorated to just 49.2 points for this month, while significantly missing analysts’ expectations for 50.5 points. Moreover, the indicator declined from the previous month’s 50.7 points. A reading below 50 points indicates a contraction of some particular industry. The report itself is based on responses of more than 400 manufacturers in China. At the same time, a negative result for the PMI Index was not the first this year. Earlier, disappointing numbers were posted by industrial production, investment and retail sales in China which all fell short of forecasts in January-February.

Economists are suggesting that such a pessimistic reading for activity in the manufacturing sector of Chinese economy, which accounts for more than 40% of GDP, will lead to more aggressive stimulus actions from country’s government in order to maintain the pace of economic growth above 7% in 2015. Among those moves, officials may go further in terms of cutting interest rates and the reserve requirement ratio as soon as April.