Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The fact that overall Eurozone economic sentiment held up well in May could ease concern that the Eurozone’s recovery is starting to flag as the recent stimulus it has received is diluted by a recent firming in the euro, oil prices and bond yields from very low levels”

- Howard Archer, Chief UK and European Economist at IHS Global Insight

The European Commission's Economic Sentiment Indicator, a measure of business and consumer confidence, was stable in May, after slightly falling in April from near the highest level in four years in March. The index stood at 103.8 in the reported month, unchanged from April. Overall economic sentiment was mixed across the Euro zone. While it improved in Germany, France, and the Netherlands, it dropped in Italy and Greece. It remained unchanged in Spain. Yet, business and consumer confidence in the currency bloc stayed well above long-term average, as the Euro, energy prices and bond yields support economic growth in the region.

Meanwhile, confidence in the Euro zone’s third biggest economy’s manufacturing sector remained strong in May, albeit the indicator fell in the reported month. The Manufacturing Confidence Index slid to 103.5 in May, from 104.0 a month earlier. At the same time, Spanish shops recorded lower shopping activity in April compared with the previous month. Retail businesses in the Euro area's fourth biggest economy enjoyed growth of 2.9% year-on-year in April. In the previous month, however, the gauge had booked a 3.7% jump, when measured on a yearly basis. In addition to that, the final data confirmed that the Spanish economy grew 0.9% in the first quarter, after adding 0.7% in the final three months of 2014.

USD

“The confidence has returned to housing, not only as shelter but as a good long-term investment”

- Ron Peltier, CEO of Berkshire Hathaway's real estate affiliate, HomeServices of America

The number of Americans applying for unemployment benefits unexpectedly jumped last week, but remained at levels consistent with an improving labour market. Initial claims for unemployment aid increased 7,000 to a seasonally adjusted 282,000 for the week ended May 23, according to the Labor Department. The number of claims for the prior week were revised to show 1,000 more applications received than previously reported. Despite last week's increase, claims remained below 300,000, a level associated with a strengthening jobs market, for a 12th consecutive week, an unusually long streak given a weak economic backdrop. The four-week moving average of claims, considered a better gauge of labour market trends as it excludes week-to-week volatility, rose 5,000 last week to 271,500.

A separate report showed contracts to purchase previously owned homes increased for a fourth consecutive month in April to the highest level in nine years, buoying the outlook for the housing market. According to the National Association of Realtors, its Pending Home Sales Index, based on contracts signed last month, jumped 3.4% to 112.4. The index now stands at its highest level since May 2006. The upturn comes after a year of solid hiring, which has increased demand to buy houses.

GBP

“This figure exaggerates the scale of the slowdown and is likely to be revised upwards”

- David Kern, chief economist at the British Chambers of Commerce

The UK economic output rose in line with expectation in the first three months of 2015, marking the lowest growth rate since the fourth quarter of 2012. The British GDP expanded 0.3%, whereas economists had hoped that the Office for National Statistics would revise its growth estimate to 0.4%, when announcing its second reading of data. The Bank of England expects the final revision to show the nation’s economy expanded 0.5% during the March quarter and believes growth will accelerate during the three months through June. Economic growth stalled due to the service sector performing worse than previously thought, as well as a widening trade deficit. Manufacturing and construction, which were slightly revised upward, failed to offset a gloomier performance of the services sector, Britain's key growth engine, which accounts for almost 80% of the economy. Trade was also a strong downside contributor to growth, as imports, particularly of oil and machinery, increased at a faster rate than exports. The data also confirmed the economy grew 2.4% over the year to the first quarter, also missing expectations of an upward revision to 2.5%. The ONS also said that UK GDP grew by 2.8% in 2014, compared with 2013.

In a separate release, the ONS said business investment on the quarter performed better than expected, surging 1.7%, which is the highest since the second quarter of 2005.

CAD

“Uncovering opportunities for new product development and trade partners, in fields like electronics, pharmaceuticals and hi-tech, would provide meaningful support to Canada’s long-term economic health beyond traditional industries and trade routes”

- Andrew Skinner, head of Global Trade and Receivables Finance

Canada’s current account widened in the first quarter to the second highest level on record amid worsening trade, particularly in the energy sector. The deficit widened to $17.5 billion in the beginning of the year, compared with the market’s median forecast of $18.7 billion gap. The trade in goods deficit ballooned to a record $7.25-billion in the first quarter. Overall exports of goods dropped to $128.0-billion as the value of energy products declined $5.9-billion despite higher volumes, while imports of goods rose to $135.3 billion. The goods surplus with Canada's leading trading partner, the US, shrank to $6.1 billion, while the goods trade deficit with non-US countries widened to $13.3 billion.

Meanwhile, a separate report showed Canada’s industrial product prices declined more than expected, while raw materials costs rose above estimates in April. Canada's Industrial Product Price Index dropped 0.9%, after climbing a downwardly revised 0.2%, according to Statistics Canada. The decrease in energy and petroleum prices was the main driver during the month, with prices plunging 3.2%. Excluding energy, IPPI was down 0.6%, the first decline since May 2014. The losses were caused by lower prices for autos, engines and parts. The Raw Materials Price Index (RMPI) edged higher 3.8% in April, after falling by a downwardly revised 1.5% the previous month.

JPY

“The data splashed cold water over optimistic views of consumer spending”

- Yasunari Ueno, chief market economist at Mizuho Securities

A set of economic data from Japan painted a mixed picture with inflation and industrial production surpassing analysts’ expectations, while improved labour market failed to persuade consumers to open their wallets. The national core CPI climbed only 0.3% year-on-year in April, a sharp deceleration from the 2.2% advance recorded a month earlier, with the impact of last year's consumption-tax increase dropping out of the CPI equation. Nonetheless, the figure was better than the expected 0.2% gain. In addition to that, Tokyo's inflation data showed the CPI inching higher 0.2% in May, sliding from the 0.4% rise seen in April. At the same time, Japan’s industrial production increased 1.0% in April from the previous month, beating forecast for a 0.8% gain. Japan's manufacturers now anticipate May output will increase 0.5% on-month in May, up from the previous forecast for a 0.3% decline. Moreover, the country's employment picture brightened, as the seasonally adjusted jobless rate for April came in at 3.3%, compared with economists’ expectations of 3.4%.

Nevertheless, consumer spending remained stubbornly weak, as it dropped 1.3% in April from the previous year. The decline was surprising considering the low level of spending in April 2014, in which the sales tax was hiked, sending consumption plunging and pushing the world’s third biggest economy into contraction.