Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“Over the past three years, there have been significant reforms to the labor market, the pension system, fiscal framework and financial sector. While implementation of some reforms will continue, we do not expect any major new structural changes before the general elections in 4Q 2015”

- Fitch

The number of unemployed people in Europe’s biggest economy unexpectedly plummeted, while jobless rate stayed unchanged at 6.7%. The gauge came in at –22,000, following a revised 9,000 rise booked in September surprising analysts, who had expected a 4,000 increase. Germany’s economic performance is a closely watched gauge of the development of the wider currency area as it makes up about 30% of the Euro zone’s economic output. Meanwhile, Spain, the Euro area’s fourth largest economy, enjoyed expansion in the third quarter, indicating economic revival maintained momentum following five bumpy years. The country’s GDP grew 0.5% on a quarterly basis in the July-September period, following the 0.4% and 0.6% growth in the first and second quarters, respectively, and recording the fifth straight quarter of growth. On a yearly basis, the economy expanded 1.6%, after the second quarter’s 1.2% increase. Although Spain has shown positive signs of improvement and growth compared with the other Euro zone members, unhealthy high unemployment, a heavy debt load and low inflation probably remain the biggest unsolved issues in the country, undermining stronger growth across the sectors. Meanwhile, in its neighbour, Portugal, Troika will assess Lisbon’s 2015 budget and structural reforms, as officials in Brussels are concerned that Portugal's draft budget does not include any additional austerity measures to replace those rejected by Portugal's Constitutional Court.

USD

“The report affirmed what was broadly believed to be the case: the economy grew at an above trend rate in recent months, extending its strong advance since early spring”

- Jim Baird, chief investment officer for Plante Moran Financial Advisors

While concerns about the health of overseas economies are mounting, the US economy continues to surprise analysts and market participants by its ongoing strength, as it grew steadily again in the third quarter, supported by American consumers and businesses. GDP rose at annualized rate of 3.5% in the July-September period, exceeding economists’ expectations for a 3.0% growth and following a robust 4.6% pace in the previous quarter. The data presented advance estimate, which is based on incomplete information and thus will be subject to future revision. The third-quarter expansion was driven largely by an increase in government consumption, which gained 4.6%, the most since second quarter of 2009, adding 0.83% to the headline number.

Meanwhile, a separate report showed that the number of Americans seeking unemployment benefits rose last week, while underlying trend remains consistent with a strengthening labour market. Initial jobless claims increased to a seasonally adjusted 287,000 for the week ended October 25, the Department of Labor said, marking the seventh consecutive week that the gauge has come out below 300,000. The four-week moving average of claims, which is considered to be a better gauge of labour market trends as it strips out week-to-week volatility, declined 250 to 281,000.

GBP

“Despite the slight rise in prices during October, the overall trend is one of slowdown”

- Jonathan Samuels, chief executive of Dragonfly Property Finance

House price growth in the UK slowed for a second consecutive month in October, adding to further signs that the country’s property market is cooling. According to Britain’s second biggest mortgage lender Nationwide, house price inflation fell to 9.0% on an annual basis, compared with 9.4% in September. On a monthly basis, house prices rose 0.5% in October following the 0.1% decline a month earlier, and bringing the average house price to 189,333 pounds. A number of indicators suggest the trend will continue to persist, with the activity softening further in the near term. The Nationwide said stricter mortgage lending rules, which took effect in April, might be one driver for the slowdown; while a fear of higher mortgage rates next year another. The recent data of the Bank of England showed that the number of mortgage approvals declined to the lowest level in 14 years in September.

While currently the Bank of England officials weigh when to start raising interest rates, as the nation’s economy continues to strengthen, Nationwide’s chief economist Robert Gerdner believes that the housing market “should be able to cope with higher interest rates, provided the increase is gradual and the economy and the labour market remain in good shape.”

JPY

“It’s easy money, so financials, banks and securities, and real estate stocks stand to benefit further”

- Masayuki Doshida, senior market analyst at Rakuten Securities

The Bank of Japan unexpectedly decided to expand what was already unprecedentedly massive monetary stimulus as economic growth and inflation have not accelerated as anticipated after the sales tax hike in April. The central bank said that it would enlarge the monetary base to 80 trillion yen, up from the current 60-70 trillion yen it has targeted since last April. The new round of open-ended qualitative and quantitative easing was approved by a 5-4 vote. The decision boosted stocks, with the Nikkei 225 Stock Average soaring to the highest level since 2007, and sent the Japanese Yen tumbling, with USD/JPY rising to seven-year high at 110.67. The announcement came as recent data showed consumer inflation falling further in September, raising doubts over the BOJ's ability to reach its 2% inflation goal.

Adjusted for the sales tax hike in April, core consumer prices climbed 1% on year, compared with the 1.1% rise in August and well below the 2% target the Bank of Japan plans to achieve by April 2015. A separate data showed that household spending dropped 5.6% in September from a year earlier, while the unemployment rate inched higher to 3.6% from 3.5%. Prime Minister Shinzo Abe is pondering whether to proceed with a second stage for lifting the sales tax. The levy went to 8% from 5% this year, dragging the Japanese economy into the severest contraction in more than five years. A further hike is scheduled for October 2015, to 10%.