Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The slowdown in April was in fact therefore a symptom of weaker expansions in both Germany and France, with the latter suffering a near-stalling of growth led by an accelerating downturn of its manufacturing economy”

- Chris Williamson, chief economist at Markit

A set of red numbers came out on Thursday from the Euro zone’s member states as fundamentals appeared to be worse than expected. Manufacturing activity in the 19-nation region continued to rise in April, albeit at a slower pace, as the flash manufacturing PMI for the Euro area fell to 51.9 points in the current month, down from 52.2 in March and compared with economists’ expectations for a reading of 52.6 points. A closely watched composite PMI declined to 53.5 from 54.0 in March, while analysts had anticipated a rise to 54.4. In the Euro area's number one economy, Germany, preliminary data showed that the activity growth in the manufacturing sector continued at a somewhat slower pace, with the manufacturing PMI falling to 51.9, while the services sector also showed a slightly slow activity, with the corresponding indicator booking 54.4 points in April. In France, the Euro zone’s second biggest economy, manufacturing activity remained sluggish in April and failed to enter into positive territory. The flash manufacturing PMI came in at 48.4 in the reported month, worse than the 48.8 recorded in March, and against expectations of 49.2. Meanwhile, business activity in France's services sector remained in expansion in April, with the flash services PMI declining to 50.8 from the 52.4 seen in March. Elsewhere in Spain, unemployment data showed a small uptick, as the jobless rate climbed to 23.78% in the first quarter compared with 23.70% in the preceding three month period.

USD

“The sector is coming back from its winter doldrums and most of the factors argue for even more improvement going forward”

- Joel Naroff, president of Naroff Economic Advisors

The number of applications for US unemployment benefits remained below $300,000 for the seventh consecutive week, adding to signs of a rebound in payrolls after hiring declined in March. Employment growth slowed sharply in March, with nonfarm payrolls rising by only 126,000, ending a 12-month streak of gains above 200,000. Jobless claims rose by 1,000 to 295,000 in the week ended April 18, a Labor Department report showed. The four-week moving average of claims, a better measure of labour market trends as it excludes week-to-week volatility, increased 1,750 last week to 284,500. Claims below 300,000 are associated with a strengthening labour market. Yet, Fed officials have said they would like to see further strengthening of the labour market before hiking interest rates. Sluggish economic growth at the beginning of the year has made a June rate hike less possible.

Meanwhile, a separate report by Markit showed activity in the US manufacturing sector declined to the lowest level in three months. Preliminary data revealed the manufacturing PMI fell to 54.2 in April, down from 55.7 and compared with economists’ expectations for a 55.5 reading. The output component dropped from the final March read of 58.8 to 55.4, which was also the weakest since January. The sub-index measuring new orders also slid in April, coming in at 55.4, compared with March's reading of 57.2.

GBP

“The public finances saw further year-on-year improvement in March, with the result that Chancellor George Osborne clearly undershot his fiscal targets for 2014/15 contained in March’s budget.”

- Howard Archer, IHS Economics

Retail sales in Britain unexpectedly declined last month, driven down by a plunge in sales at petrol stations. According to the Office for National Statistics, the volume of sales including auto fuel fell 0.5% in March. In contrast, economists had forecast a 0.4% rise. Excluding petrol, sales climbed 0.2% in March, versus a 0.6% increase in February, which was revised down from an initial estimate of 0.7%. For the three months through March of 2015, sales edged up 0.9%, down from 2.2% in the first quarter of 2014. Economists said the retail data could herald slower growth in the beginning of the year. UK economic growth data for the first three months of 2015 are due to be published next week.

A separate report showed the budget deficit in the fiscal year ended March narrowed more than expected. The shortfall was the smallest for any March in 11 years. Net borrowing excluding public-sector banks came in at 7.4 billion pounds. Government coffers in March were filled by an increase in receipts from income and corporation tax, as well as VAT receipts. Revenue increased 3% and spending declined 3.1%. It resulted in the full-year deficit at 87.3 billion pounds, below the 90.2 billion pounds, the Office for Budget Responsibility estimated last month. The OBR predicts public sector borrowing to fall each year to eventually reach a slight surplus in 2018-19.

CHF

“If the market wants to enforce a stronger franc, the SNB cannot do anything against it”

- Ulrich Leuchtmann, head of currency strategy at Commerzbank AG

Switzerland’s trade balance rose unexpectedly in March, according to Federal Statistical Office. Swiss trade balance increased to a seasonally adjusted 2.525 billion francs, from 2.316 billion francs in the preceding month, whose figure was revised down from 2.473 billion francs. Meanwhile, a separate report showed Swiss economic expectations improved in April as hopes for a revival in the Euro zone economies, Switzerland's top export market, increased and as the Swiss Franc remained below parity with the single currency. A survey by the ZEW Institute and Credit Suisse Group showed the overall headline gauge of investor and analyst expectations climbed to negative 23.2 points this month from minus 37.9 points in March. This comes after the reading dropped by a record amount in February. Financial analysts are becoming increasingly upbeat about the growth outlook for the Euro zone economies following the European Central Bank's asset-buying programme and lower energy prices. On top of that, more than 70% of respondents predict the Franc to either remain steady or fall versus the Euro. In the meantime, the Swiss Franc slid versus the Euro and Greenback after the central bank said it would eliminate exemptions from its policy of negative interest rates for certain public accounts, including the SNB’s pension fund. The move confirms that the SNB’s policy of negative interest rates has not been as effective at driving capital away from the Franc as the central bank had hoped.

CNY

“Operating conditions in China's manufacturing sector deteriorated slightly for the second month running in April”

- Qu Hongbin, economist at HSBC

A preliminary reading of China’s manufacturing sector’s performance showed a further decline in activity in April, which fell to the lowest level in 12 months, adding to signs Beijing’s efforts to cushion a slowdown are yet to help the nation’s factories. The Markit HSBC Flash PMI declined to 49.2 in April down from 49.6 a month earlier, with a reading below the crucial 50-mark threshold indicating a contraction of the sector’s business activity. The gauge remained in contractionary territory due to sluggish domestic demand and flagging exports. Moreover, there were stronger deflationary pressures in the sector, with both input and output prices declining at faster rates. Manufacturers also reported job shedding for the 18th consecutive month. However, increasing new export orders in April appeared to be a bright spot. The preliminary PMI figure is based on 85% to 90% available data and is released about one week before the final PMI reading.

The weak PMI reading followed China’s gross domestic product data, which showed the nation’s economic output expanded at 7% from the previous year in the first quarter, while some economists expect that Beijing might not be able to meet its goal of about 7% growth for the full year. Industrial output growth slowed in March to the lowest level since 2008, while exports plunged 15% from a year earlier.