Daily Forex Fundamental Overview

Fundamental Analysis

EUR

"Although the easing price pressures are largely due to low oil prices, the ECB nonetheless views this development with concern and should feel its latest decision to announce a bond buying programme was justified”

- Viola Julien, an economist at Helaba bank

Deflation contagion spreads gradually around Europe, as consumer prices growth in Germany turned negative in January for the first time in more than five years. According to the Federal Statistics Office, inflation in the Euro zone’s number one economy dropped 0.5% on year in January, the lowest level since September 2009. Measured on a monthly basis, German HICP, the reading that allows comparison between inflation figures in other European countries, declined 1.3% from December. Meanwhile, German unemployment rate fell to the lowest level in more than two decades, the Labour Office reported. The jobless rate slid to 6.5% in January, boosting hopes that private consumption will help boost growth in the Europe’s growth engine this year. The number of German unemployed dropped 9,000 in January following a 25,000 decline in December. Germany's improving labour market, coupled with lower energy prices, has boosted consumer sentiment and spending. The monthly survey by GfK has forecasted consumer sentiment will reach a 13-year high of 9.3 points in February, jumping from 9.0 points in December.

Meanwhile, confidence in Italy’s manufacturing sector dropped, with the corresponding index falling to 97.1 in January, down from 97.5 a month earlier.

USD

“The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced”

- Federal Reserve

The number of Americans seeking unemployment benefits plunged to the lowest level in 15 years in the week ended January 23, a day after the Fed painted an optimistic outlook for the world’s number one economy. According to the US Department of Labor, initial jobless claims dropped to 265,000, following a revised 308,000 in the preceding week. It was the biggest weekly fall since November 2012. However, the data might be a subject to revision, as it included the Martin Luther King holiday, meaning fewer claims were likely processed. The four-week moving average of claims, considered a better gauge of labour market trends as it strips out weekly volatility, declined 8,250 last week to 298,500. The report also revealed the number of people still receiving benefits after an initial week of aid dropped 71,000 to 2.39 million in the week ended January 17.

A separate report showed that pending home sales unexpectedly dropped in December. The National Association of Realtors monthly index, which measures signed contracts to purchase existing homes plunged 3.7% from a downwardly revised November reading, but it remained 6.1% above December of 2013. Analysts, however, had expected a 0.5% gain. That was the lowest reading for the index since April and the biggest month-on-month decline in a year. The Fed reiterated in January that the housing recovery "remains slow".

GBP

“Annual house price growth continued to soften at the start of 2015”

- Robert Gardner, Nationwide's chief economist

According to the Nationwide, annual house price growth in the UK slumped between December and January. The growth was continuously decreasing for five months in a row, as it reached a 14-month low of 6.8% in January. The prices for houses rose slightly less than the 0.4% expectation, by 0.3%, compared to 0.2% in the preceding month, with house prices currently 2.4% above the pre-crisis high. The price growth is expected to remain at a steady level amid activity slowdown in the housing market over the last few months. The amount of mortgages approved for purchasing houses was approximately 20% less than the level in the same month in 2014. Reasons for the slowdown are obscure, as unemployment keeps sliding down and for the first time in five years the wage growth rate is outrunning the cost of living. If economic background continues to strengthen as anticipated, the housing market activity will keep improving in the upcoming months.

Meanwhile, the UK retail sale volumes declined in January, but less than the expectation of 31 points, relieving of any concerns over UK’s economic situation. In January the CBI realized sales declined by 22 points to 39, compared to 61 in the preceding month. The sales index data above 0 shows higher sales volumes, while below zero indicates lower sales volumes.

JPY

“The downward pressure from crude oil falls on Japan's inflation is far bigger than the boost from higher import costs from a weak yen”

- Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute

Retail sales in Japan unexpectedly dropped in December, sapping hopes that the world’s third biggest economy has weathered the worst of the post-tax hike recession. Retails sales dropped 0.3% on month in December, while an annual 0.2% growth was against analysts’ expectations for a 0.9% gain. Policymakers expect consumer spending to increase this year as the chocking effect of the sales tax hike fades away, and they count on wages to foster pickup in private consumption, which accounts for about 60% of the economy. Japan’s core inflation also added to the recent streak of worse than expected data, as the gauge fell for a fifth month in a row in December, pulling the Bank of Japan further away from reaching its price goal. Consumer prices excluding fresh food rose 2.5% on year in December following the 2.7% increase a month earlier and against a 2.6% forecast, while stripping out the effect of sales-tax hike in April 2014, core inflation climbed 0.5%. At the recent BoJ's monetary policy meeting officials revised downwards their forecasts for inflation over the next two years amid the sharp decline in petrol prices. The central bank now expects inflation of around 0.9% in the 2014 fiscal year compared with the 1.2% forecast in October. The bank's inflation outlook for the 2015 fiscal year was lowered even more dramatically to just 1.0% from 1.7%. Meanwhile, Japan’s industrial output also surprised markets to the downside, as it grew less than expected by 1% on month in December versus the 1.3% forecasts by economists.