Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“Policymakers will be reassured by the robust growth rates seen in these countries and the resilience of the manufacturing sector as a whole, especially as growth is likely to pick up again now that Greece has jumped its latest hurdle in the ongoing debt crisis”

- Chris Williamson, chief economist at Markit

The Euro zone’s manufacturing sector continued to expand strongly in July amid the turbulent Greek debt crisis during the month. The final manufacturing PMI for the Euro area slid to 52.4 in July, down from 52.5 a month earlier, but overshooting economists’ forecast for 52.2 points. New order growth weakened last month, with the sub-index falling to 52.2 from 52.7 as factories increased their prices for a second month in a row, albeit at a weaker rate than in June. Business activity in the German manufacturing sector remained in the green zone for the eighth consecutive month, albeit with a weaker reading, the fresh Markit data showed. July's final manufacturing PMI edged lower to 51.8, down from the final reading of 51.9 points in the prior month. However, in France, the region’s second biggest economy, factories failed to keep momentum in the reported month, with the final manufacturing PMI falling to 49.6, compared with the final reading of 50.7 recorded in June. At the same time Spanish manufacturing sector continued to enjoy a robust performance, as the corresponding gauge came in at 53.6 in July, slightly falling from June’s 54.5.

Meanwhile, the data for Greece showed a collapse in output, with the headline PMI sharply plunging to 30.2, the lowest level on record, with data series dating back to 1999.The services and composite PMI release are due on Wednesday.

USD

“Consumers still see the future income gains as their primary problem going forward”

- Richard Curtin, director of the Michigan Survey of Consumers

A closely watched core PCE inflation remained steady in June, while consumer spending and incomes suggest robust, albeit moderate economic growth. The index for personal consumption expenditures, excluding volatile food and energy prices, climbed 0.1% in June, in line with the market's forecasts and marking the third such rise in a row, according to the Department of Commerce. Measured on an annual basis, the reading was 2.3% higher, maintaining the trend since the start of the year. This should make Fed policy makers comfortable to start lifting the federal funds rate at their meeting in September. Consumer spending in nominal terms climbed 0.2% in June also matching economists’ projections, and following a downwardly revised 0.7% rise in May. Still, healthier consumption allowed the world’s number one economy to rebound 2.3% in the June quarter in annualized and inflation-adjusted terms. At the same time the data showed households' incomes increased 0.4% for the third month in a row, beating economists' expectations’ for a 0.3% gain in June.

Meanwhile, the pace of growth in the nation’s manufacturing sector weakened in July. The ISM’s barometer of the US factory activity dropped to 52.7, down from 53.5 a month earlier. While the new orders sub-index rose to 56.5, prices paid subcomponent and the employment index slid to 44.0 and 52.7, respectively.

GBP

“Although a tick higher in the headline PMI breaks the decelerating trend in UK manufacturing, growth in the sector remains near-stagnant and suggests that the sector is continuing to act as a drag on the economy”

- Rob Dobson, economist at data company Markit

British manufacturing growth accelerated in July, recovering from the lowest level in more than two years in June. According to Markit Economics, UK manufacturing PMI rose to 51.9, up from 51.4 in June, whereas economists had forecast 51.5. Nevertheless, the reading remained below the average of 54.3 the sector has had since April 2013. British factories struggle as the Pound’s strength, which has gained 10% versus the Euro this year, and the economic weakness in the Euro zone weigh on demand from overseas. The pace of growth of new order dropped to 52.2, the lowest level since September 2014. In addition to that, the data showed prices paid by manufacturers for raw materials declined in July following a rise a month earlier for the first time since August 2014. However, factory gate prices climbed to the highest level in almost a year. The central bank expected inflation to increase swiftly towards the end of 2015 as last year's decline in global oil prices filters through the numbers. Yet, official data showed British inflation slid back to zero in June. While the British economy is gaining momentum, risks from the external environment mean the Bank of England is likely to maintain interest rates at a record low this week. Market participants will now be waiting for both the construction and services PMI data before a slew of data due on Thursday this week, when the central bank releases its rate announcement, the Monetary Policy Committee minutes, and quarterly forecasts all at the same time.

AUD

“On its own the strength in retail sales argues against further RBA interest rate cuts, but the poor outlook for business investment and low pricing power mean that the RBA may yet be forced to act on its easing bias”

- Shane Oliver, head of investment strategy at AMP Capital

Australia’s retail sales data exceeded expectations in June with the biggest increase in four months, while household spending for the second quarter likely boosted economic growth. Sales at Australian retailers surged a seasonally adjusted 0.7% on month in June, and 0.8% in volume terms, the Australian Bureau of Statistics reported. The June’s indicator came in better than the revised 0.4% growth in May and economists’ expectations for a 0.5% rise. From the previous year total sales soared 4.94%, the biggest annual percentage rise since October 2014. Household goods retailing climbed 0.8% over the reported month, while food retailing edged higher by 0.2%, and dining out retailing ticked up 0.3%. Department store sales was the only retail category to decrease in June, sliding 0.2%.

A separate report showed Australia’s trade deficit widened further in June. The nation’s trade shortfall expanded to $2.93 billion in the reported month, compared with a revised $2.68 billion gap in May. Imports surged 4% in June to $29.28 billion, while exports grew a solid 3% to $26.35 billion. Despite near-record exports of key commodities including iron ore and coal, steep price declines over the past year have undermined Australia's trade position.