Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The recent easing of the Greece situation contributed to stronger sentiment in the German economy."

- Hans-Werner Sinn, Ifo’s president

Business confidence in Germany, the Euro zone’s biggest economy, improved more than predicted in July as concerns over Greece have subsided, suggesting a solid growth in the German economy this year. According to the Ifo think-tank, the business climate index climbed to 108.0 this month, up from a revised 107.5 in June and compared with economists’ median forecast of 107.5. The data is based on a monthly survey of around 7,000 companies in manufacturing, construction, wholesaling and retailing industries, which are asked about their assessment of the current situation and their business expectations for the next six months.

The German central bank said in its July monthly bulletin that “strong” rises in factory orders during April and May, especially from overseas, point to a revival in the German economy in coming months. The outlook may also be supported by the Euro area’s deal to provide Greece with a third bailout, averting the country’s default and potential exit from the single currency. Yet, there are risks to the German economy down the road, including longer-than-expected periods of weakness of the US and the Chinese economies, both of which are top German export destinations, and a possible new flare-up of the Greek crisis.

USD

“This will likely leave the Fed comfortable arguing that the economy is making progress closing the output gap, allowing a gradual hiking cycle to commence”

- Bank of America Merrill Lynch

Orders to American factories for big-ticket items rose more than expected in June, while business investment recovered after two months of drops. Durable goods orders surged 3.4% in June from the previous month, when orders had declined 2.1%, according to the Commerce Department. May’s reading, meanwhile, was revised to show even sharper decline of 2.2%, compared with the original 1.8% decrease. At the same time, core durable goods orders, which exclude volatile category of transportation goods, were up 0.8% in June, the best showing in 10 months. The highly-watched bookings for non-defence capital goods excluding aircrafts, viewed as a proxy for business investment plans, jumped 0.9%, also the best showing since March.

US manufacturers have struggled this year from the effects of a strong Dollar and a sharp decline in energy prices. The higher value of the Greenback versus other currencies makes US goods more expensive and less competitive in major export markets, while the lower oil prices have led energy companies to scale back investment plans. The overall economy shrank at an annual rate of 0.2% in the January-March quarter. Weakness was likely due to a number of temporary factors including a harsh winter. The economy is expected to rebound to around 2.5% in the second quarter. The government will release its first estimate of GDP growth on Thursday.

GBP

“Manufacturers are continuing to feel the pressure from the stronger pound”

- Katja Hall, CBI deputy director general

The UK factory orders rose at the weakest pace in two years in July as a strong Pound has further dimmed the outlook for manufacturing exports. The Confederation of British Industry’s industrial order book balance declined to –10 this month, hitting the lowest level since July 2013 and compared with –7 in the prior month. Economists, in contrasts, had expected the reading to improve slightly to –5. Nevertheless, the gauge remained above its long-term average of –15. The CBI's quarterly industrial trends survey suggested a clouded outlook for manufacturers. Expectations for export orders in the next three months plunged to their lowest level since October 2011, as manufacturers are continuing to feel pressure from a strong Pound. Earlier this month, the Sterling reached the highest level in more than seven years on a trade-weighted basis. The British economy remains heavily reliant on consumer spending, the recent reports showed.

Data due later today is expected to show the UK economy rebounded from a surprise slowdown in early 2015 and expanded by a quarterly 0.7% in the April-June period, returning back to the growth rate seen at the end of last year.