Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The 14 August agreement reached between Greece and the European Institutions on the framework for a third official bailout programme has reduced the risk of Greece defaulting on its private sector debt obligations”

- Fitch

German Finance Minister Wolfgang Schauble urged lawmakers to back the third bailout for debt-stricken Greece, highlighting that it offers a “sustainable path” even though the IMF remains hesitant on whether to join the aid programme. Yet, German Chancellor Angela Merkel said that she expects the lender of last resort to sign on in the fall, after the first progress report.

Meanwhile, Fitch Ratings upgraded Greece’s credit rating to “CCC” from “CC”, saying the agreement between Athens and the European Institutions reached last week on the framework for a third bailout programme has lowered “the risk for Greece defaulting on its private sector debt obligations”. Yet, these ratings are both well below investment grade. Fitch also added that “the risks to the programme success remain high. It will take some time for trust to be restored between Greece and its creditors, which increases the risk of delayed programme reviews. Meanwhile, the political situation in Greece remains unpredictable.” At the same time, the ECB reportedly lowered the ceiling on its emergency lifeline for Greek banks, signalling that the nation’s lenders are building cash reserves. The central bank reduced the ELA by around 1.3 billion euros to 89.7 billion euros, increasing confidence in the country’s banking sector after Athens sealed a bailout deal with its European creditors.

USD

“The fact the builder confidence has been in the low 60s for three straight months shows that single-family housing is making slow but steady progress”

- Tom Woods, NAHB Chairman

US housing starts rose to the highest level since October 2007 in July, adding to further signs of economic improvement in the world’s biggest economy. Groundreaking inched up 0.2% to a seasonally adjusted annual pace of 1.21 million units, according to the Commerce Department. Moreover, June’s data was revised sharply higher to a 1.20 million-unit rate from the previously estimated 1.17 million-unit pace. Housing starts have been above one million for four months in a row. The upbeat housing data added to sturdy payrolls, retail sales and industrial production reports in suggesting the US economy started the third quarter on a firm footing. The slew of upbeat fundamentals reinforces the view the US central bank will hike rates in September. In July, groundbreaking for single-family homes, which makes up the largest share of the market, soared 12.8% to a 782,000 unit pace, the highest level since December 2007. However, starts for the volatile multifamily segment plummeted 17%.

At the same time building permits plunged 16.3% last month to a 1.12 million-unit pace. The decline followed three consecutive months of hefty increases and is likely to be temporary after a report on Monday showed confidence among homebuilders climbed to the highest level in almost a decade in August.

GBP

“Further depreciation of the Australian dollar was expected to impart stimulus to the economy through stronger net exports”

- Reserve Bank of Australia

The UK inflation rate turned positive in July as the Office for National Statistics said Tuesday that the consumer price index rose to 0.1%, beating a zero growth forecast. Moreover, core inflation, a less volatile measure, which stripped out energy, food, alcohol and tobacco, increased to 1.2% from 0.8%, reaching the highest rate in five months. Measured on a monthly basis, inflation declined 0.2% in July. A recent strength of the Sterling and sharp decline in oil prices has curbed inflation in Britain. The latest data also showed that the retail price index stayed unchanged at 1%, just in line with expectations.

While the figures published were stronger than anticipated, inflation is still well below the Bank of England’s 2 % target. Economists say inflation is likely to remain low in the short term. BoE officials led by Governor Mark Carney expect consumer-price inflation to hover around zero for most of this year, before accelerating back to the target during 2016 and 2017. In its latest economic outlook, the BoE stressed that strong Pound and steep drops in oil prices would push down inflation until at least the middle of 2016 and said the impact of the rise in Sterling could persist even longer. Any further upward movement in inflation could trigger the central bank to start raising interest rates as other indicators, including GDP, wage growth and jobless rate, point out the signs of steady recovery in the economy.

JPY

“There is still time for exports to recover, but as of now they look a little weak. I don't think we need stimulus measures now, but this could become more likely heading into next year.”

- Hidenobu Tokuda, senior economist at Mizuho Research Institute

Japan’s trade shortfall widened to the largest level in five months in July, as exports declined due to weak demand in China and other key trading partners, whereas imports dropped by less than expected. Export growth of the world’s third-biggest economy slowed last month to 7.6%, following a robust 9.5% annual increase in June, amid reduced shipments of cars and electronics to Asia. Faltering exports in the reported month indicated overseas demand in the September quarter may not be strong enough to help Japan’s GDP recover from an annualized 1.6% contraction in the second quarter. Exports to China, Japan’s top trading partner, climbed 4.2% in July from a year ago, down from June’s 5.9% annual growth. In contrast, Japan’s outbound shipments to the US surged an annual 18.8% in July, following the 17.6% annual increase a month earlier. At the same time, imports dropped 3.2% on year in July, compared with a 7.9% decline expected by economists. As a result, Japan’s trade deficit was 268.1 billion yen in July against market prediction for a 56.7 billion yen and following a gap of 70.5 billion yen in the preceding month.

The Japanese economy is forecast to resume growing in the current quarter if consumer spending rebounds. However, faltering exports suggest the overall pace of growth may not be enough to foster the price growth to remove deflation threats.

NZD

“On the demand side, there is still concern about China and the impact that devaluation may have there”

- Eric Meyer, president of Chicago-based risk management, advisory and brokerage firm HighGroundDairy

New Zealand producer prices declined in the second quarter, due to lower prices for milk and electricity generation, with input costs falling faster than outputs. The input PPI, which measures the change in prices producers pay for operating expenses, decreased 0.3% in the three months through June for an annual 3.3% fall, compared with the 0.5% drop expected by economists. Dairy product manufacturing inputs slid 4.2% in the reported period. Prices received by producers were 0.2% lower in the June quarter, Statistics New Zealand reported, as prices for dairy farming outputs slipped 5.5% over the quarter.

Global dairy prices have plunged from a peak in early 2014 due to a rapid build up of global supply and faltering demand from China. Weak dairy prices have slashed farmer incomes in New Zealand and may pose wider risks to the economy of the world's largest dairy exporting nation. However, the benchmark GlobalDairy Trade price index surged 14.8% at fortnightly auctions held by New Zealand dairy exporter Fonterra, rebounding from the lowest level since November 2002 reached at the previous sale. Wednesday’s auction enjoyed the highest participation levels so far this year. Many buyers have stayed out of the market due to weakening growth of the world’s second biggest economy, China, and global oversupply.