Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“We believe inflation is unlikely to reach the ECB’s target over the next two years.”

- Barclays

Factory gate prices in the Euro land continued to decline in July, suggesting weak inflation pressures in the currency bloc. Measured on a monthly basis, factory gate inflation slid 0.1% in the reported month, compared with the flat reading in the preceding month. In annual terms, the producer price index declined 2.1%, with the gauge remaining in red territory since June 2013. Meanwhile, consumer prices in the Euro bloc ticked up a mere 0.2% on an annual basis in August, while core inflation, which excludes volatile food and energy, climbed 1.0% in August. The headline inflation has also been in what the ECB calls the 'danger zone' - below 1% since October 2013.

A separate report showed the number of registered unemployed in Spain, the Euro zone’s fourth biggest economy, climbed for the first time in seven months. Measured on a monthly basis, the number of unemployed increased by 21,700 in August following a considerable drop of 74,000 in the preceding month. In spite of the declines in jobless numbers seen over the past months, Spain’s unemployment rate of 22% remains the second highest in the EU after Greece. Spain is one of the fastest growing economies in the Euro zone, with growth estimated to be more than 3% this year. However, the fight with high unemployment is one of the biggest challenges for Mariano Rajoy, Spain’s prime minister, to ensure victory is the Spanish general election later this year.

USD

“This report was disappointing, and it adds some downside risks to our forecasts.”

- Millan Mulraine, deputy chief US macro strategist at TS Securities

US private sector added fewer jobs than expected in August, undermining expectations that the Fed will hike interest rates in September. According to the ADP National Employment Report, American companies employed 190,000 workers in the reported month, missing economists’ expectations for 200,000 new jobs. The report was published ahead of the government’s more comprehensive employment data due on Friday. Economists predict that non-farm payrolls rose by 220,000 jobs in August following the 215,000 gain in July. The unemployment rate is predicted to tick down to 5.2% from the 5.3% in July. The data will come less than two weeks before the Fed’s crucial policy meeting on September 16-17. The chances of an interest rate increase this month have been diminished by a global stock market rout due to poor economic data from China.

Separately, the Labor Department said nonfarm productivity rose at its strongest pace in more than a year in the second quarter, keeping wage inflation weak for now. The government revised productivity to show it surging at a 3.3% annual rate, the quickest since the fourth quarter of 2013, instead of the 1.3% pace reported last month.

GBP

“The construction sector picked itself up a little more this month as overall activity stepped up. Housing remained the strongest driver of growth in addition some reported new impetus in the commercial sector”

- David Noble, Group CEO at the Chartered Institute of Procurement & Supply

The UK construction sector picked up slightly in August, the latest PMI reading for the given sector showed on Wednesday. The gauge came in 57.3 points, missing the median estimate of 57.5. However, construction PMI still stayed firmly above the contraction line and higher than July’s print of 57.1 points. The largest upward pressure on the monthly growth came from a sharp rebound in private housing projects, which was accompanied by massive demand for new houses. Growth of commercial work also accelerated in the eight month of the year, reaching its strongest since March. Moreover, the latest credit data published by the Bank of England revealed the number of mortgage approvals had increased in July to their highest level since February 2014.

Meanwhile, lower oil-related prices contributed to the weakest rate of input cost inflation since April. Looking ahead, market participants will now be closely watching the services PMI release due on Thursday. The sector activity is expected to rise to 57.7 points, up from 57.4 in the previous month. Overall, the UK economy should stride forward rather confidently, pushed by a robust services sector output and domestic consumption. A secured and reformed banking sector, as well as easy monetary policy, adds to the stability outlook.

AUD

“The Australian economy is growing well despite the biggest fall in our terms of trade in more than fifty years”

- Treasurer Joe Hockey

Australian retail sales unexpectedly declined in July, the first fall since May 2014, due to mounting consumers’ pessimism amid tough economic times. Sales dropped 0.1% in the reported month from June, when they climbed a revised 0.6%, according to the Australian Bureau of Statistics. Economists, however, had expected a 0.4% rise. The data points to renewed weakness in consumer morale, which stems from the soft economic climate amid the mining slowdown. Figures released by the ABS earlier in the week showed that the Australian economy grew at its slowest pace in four years last quarter, led by a drop in mining and construction activity, while household and government consumption were two of the main contributors to growth over the three-month period. The economy expanded only 0.2% in the second quarter, against the 0.4% economists’ growth forecast.

Meanwhile, Australia’s trade gap unexpectedly shrank in July, but the preceding month’s figure was revised to show a much bigger shortfall than previously thought. The trade deficit contracted to A$2.46 billion in the measured month, compared with the A$3.05 billion in June. Exports surged 2.0% over the month to A$26.9 billion, raising hopes that the recent drag on growth from exports will be temporary. Imports, meanwhile, remained largely flat at A$29.4 billion.