Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The Greek government is rejecting everything with the suggestion that if you vote no you will get a better or less tough, or more friendly, package. That suggestion is simply wrong.”

- Jeroen Dijsselbloem, Head of Eurogroup

The number of registered unemployed in Spain continued to decline in June, falling by 94,700 after a considerable decline of almost 118,000 in May. The Bank of Spain has upgraded its 2015 growth forecast, referring to domestic demand as the key driver for economic growth. The Spanish economy is expected to grow 3.1% this year, above the initially estimated 2.8%. However, the central bank's estimate of 2.7% for 2016 remains intact. In the meantime, an International Monetary Fund analysis revealed that Greece needs at least another 36 billion euros over the course of next three years from Euro zone member states as well as easier terms on existing debt to keep the country afloat. The IMF also said that without some reduction in Greece’s staggering debt load, the country has little hope of an economic recovery. It also showed state deposits in the banking system had fallen to less than 1 billion euros at the end of May, before Athens closed banks and imposed capital controls. Meanwhile, the Greek finance minister, Yanis Varoufakis, said that he would step down immediately if Greeks voted “yes”. If Greeks were to vote “yes”, it would signal their readiness to accept the bailout with austerity conditions that the government has been pushing against. As a result, a “yes” vote could lead not only to Varoufakis’s resignation, but also the withdrawal of other government members from Syriza including the Greek Prime Minister Alexis Tsipras.

USD

“While it has taken a long time, and extraordinary monetary policy actions, the U.S. economy is now close to full employment”

- Stanley Fischer, Fed Vice Chairman

American employers continued to add more than 200,000 jobs for a third consecutive month in June, while the US unemployment rate declined more than expected. US non-farm payrolls rose by 223,000 in June, following the downwardly revised 254,000 a month earlier, according to the Labor Department. The jobless rate slid to 5.3%, down from 5.5% the prior month, marking the lowest rate since April 2008. Nevertheless, many analysts continue to criticize the figure for not objectively reflecting the real picture of the labour market. The real unemployment rate was 10.5%, according to an alternative reading known as underemployment level or U6. It stood at 10.8% in May. Meanwhile, the number of Americans participating in the labour force dropped to 62.6% in June from 62.9% in the preceding month, reaching the lowest level since 1977. Average hourly earnings of private-sector workers remained unchanged last month at $24.95. From a year earlier, wages rose 2%, almost in line with wage gains for much of the current recovery. The mixed data comes as the US economy could face a number of headwinds later in the year. The Greek debt crisis could derail growth in the rest of Europe and even impact US financial markets. The combination of easy-money policies by foreign central banks and investors’ confidence in the US has caused the value of the Dollar to soar over the past year.

GBP

“UK construction companies experienced a growth rebound and surge in business confidence at the end of the second quarter…”

- Tim Moore, Markit’s senior economist

Activity in the British construction sector increased last month at the fastest pace since February, as job creation rose to its quickest pace so far this year. The Markit/CIPS construction PMI jumped to 58.1 in June, compared with 55.9 a month earlier. The data also showed confidence in the sector about the coming 12 months was at the highest level in 11 years. Residential house building remained the fastest growing area in the construction sector. The upbeat construction data contrasted with the Markit/CIPS PMI reading for the manufacturing sector, which showed growth declined to the slowest pace in more than two years in June. The manufacturing PMI reading declined to 51.4 in June from 51.9 in the previous month.

Meanwhile, a separate report showed UK house prices dropped between May and June, whereas analysts had expected a further rise. House prices in Britain declined by 0.2% in the reported period, which led to the annual price index decelerating to the lowest level in two years of 3.3%, down from 4.6% a month earlier, according to the mortgage provider Nationwide. The BoE has been closely monitoring the British housing market, arguing that the increasing burden of households' debt is one of the significant risks to financial stability once interest rates begin to climb. Economists expect UK house prices to continue increasing notably both in 2015 and 2016 after slowing last year.

AUD

“Iron ore and coal exports are not going back to where they were a couple of years ago. It's pretty clear that demand from China has softened and we are past the boom clearly now”

- Phil O'Donaghoe, Deutsche Bank senior economist

Australia's trade deficit shrank in May, whereas April’s record trade gap was revised to be even wider. According to the Australian Bureau of Statistics, the nation’s trade shortfall contracted a seasonally adjusted 33% to A$2.75 billion. The figure came after April’s trade deficit was upwardly revised to A$4.136 billion, as weakness in export prices of key commodities including iron ore and coal led to deterioration in the nation’s trade balance. The improvement in May was driven by both a recovery in exports and decline in imports. Outbound shipments rose 1% to A$25.53 billion in May from A$25.32 billion in the preceding month. Rural goods exports jumped by 4% to A$3.9 billion, the best performance among export goods. Exports to China increased to their highest level since December last year, but are still 7% lower over the year. With the buying power of the were Dollar falling 7% between January and late May, imports plunged 4% to A$28.28 billion from A$29.46bn a month before, owing to 18%, or A$1.07 billion drop in the capital goods category.

Separate ABS data show that short term visitor arrivals increased by 7.2% in the year to April, while short term departures rose by 4.2%. Tourism arrivals are now consistently rising at a stronger rate than resident departures.