Daily Forex Fundamental Overview

Fundamental Analysis

EUR

"It is a mistake to suppose that QE is a panacea in Europe or that it will be sufficient”

-Larry Summers, former U.S. Treasury Secretary

Super Mario did not let market participants down, as he announced full-blown QE programme in an ambitious attempt to save the Eurozone’s economy from being trapped in long-term economic stagnation. The European Central Bank agreed to purchase government bonds worth 60 billion euros a month, which is slightly more than was expected by many analysts, who had called for 50 billion euros a month. The long-awaited programme comes after inflation in the Euro bloc broke below zero and put prolonged deflationary threat on the horizon, which can lead to higher unemployment and is notoriously difficult to reverse. The ECB will be buying government bonds, debt securities issued by European institutions and private-sector bonds starting from March 2015 till at least September 2016. Such a decision would pump large amounts of money into the financial system that could then used by banks and other lenders to boost available credit. Consequently, that could spur consumer spending and act as a support to economic growth. The risks associated with the bonds issued by EU institutions will be shared; however, purchases of other government bonds will not be subject to loss sharing, Draghi said.

Ahead of the announcement, the central bank also decided to leave benchmark interest rates, the cost of borrowing at the central bank, unchanged at 0.05%.

USD

“The rise is too small to date to signal an uptrend, but the data merit watching”

- Jim O'Sullivan, chief US economist at High Frequency Economics

The number of people applying for US-state unemployment benefits dropped last week from the highest level in seven months, with the underlying trend pointing to consistent improvement in the US labour market. Initial jobless claims across the country declined to a seasonally adjusted 307,000 in the week ended January 16, down from last week's revised 317,000, according to the Department of Labor. The four-week moving average of claims, considered a better gauge of labour market performance as it strips out week-to-week volatility, advanced 6,500 last week to 306,500, breaking above the 300,000 level for the first time since September. Meanwhile, continuing claims for the week ending January 10 rose slightly and came in at 2.443 million, compared to last week's reading of 2.428 million. Employment gains have exceeded 200,000 in each of the last 11 months, the longest such streak since 1994, and job openings remain near 14-year peak. In addition to that, the ratio of unemployed people for every job opening is the lowest since early 2008.

The US unemployment rate slid to 5.6% in December, down from 5.8% in November, reaching the lowest level since June 2008. The US economy created nearly three million jobs last year. The trends in the US labour market will play a key role in the central bank's decision making process regarding monetary policy normalization.

GBP

“While the Chancellor has a chance of meeting his revised fiscal targets for 2014/15, it is going to require appreciable overall improvement in the public finances for December through to March”

- Howard Archer, IHS Economics

British government borrowing unexpectedly increased in December due to hefty contribution to the European Union budget as well as a rise in central government spending. UK’s public borrowing rose to 13.1 billion pounds in December, up from 12.4 billion pounds in the preceding months and against to the City’s expectations of 9.2 billion pounds. The UK’s government was obliged to pay 2.9 billion pounds to the European Commission in December. While central government receipts rose 2.3% or 1.1 billion pounds, central government spending increased 6.2% or by 3.5 billion pounds largely due to a rise in capital transfers within the public sector. The Office for National Statistics said that stamp duties, corporation tax and VAT receipts rose, though income tax receipts were weaker than expected. Reduction of deficit has been one of the main priorities of UK’s Conservative-led coalition since it assumed power in 2010, and is one of the main issues of the Finance Minister George Osborne’s political campaign ahead of May's national election.

Separately, UK’s total industrial orders fell in January, as the nation’s economy continued to lose some steam. The factories; total orders balance dropped to +4%, compared with +5% a month earlier, while on a quarterly basis, orders jumped to +20%, the Confederation of British Industries said. The survey of 467 companies also revealed that employment continued to rise in the sector.

NZD

"Levels of confidence remain elevated and households are still optimistic over the future, suggesting that the domestic expansion has more legs”

-Steve Edwards, economist at ANZ Bank New Zealand

Consumer confidence in New Zealand increased for a second consecutive month in January reaching the highest level in six months, as households become more optimistic about the future prospects amid cheaper petrol prices, which provide more spending power to consumers. The ANZ-Roy Morgan consumer confidence index climbed by 1.9% to 128.9 in January, up from 126.5 a month earlier, with a figure above the 100-mark threshold indicating optimism among consumers outweigh pessimism. The current conditions index rose 0.7 of a point to 126.8, while the future conditions index soared to 130.3 from 126.8 in January.

Meanwhile, a separate gauge assessing performance of the nation’s manufacturing sector indicated a continuous expansion in New Zealand's manufacturing activity. The Business NZ Manufacturing Index jumped to 57.7 in December from 55.2 in the previous month, where a figure above 50 indicates an expansion in activity, while a figure below 50 points to contraction. The index shows that the manufacturing sector has been growing for more than two years, with the last sub-50 reading in November 2012. New Zealand’s labour market also continues to strengthen as robust economic growth increases the need for hiring new workers. The ANZ Job Advertising Series rose 0.8% in December after falling 0.1% in the preceding month.