Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The current upswing will continue in 2016 and gain slightly more momentum due to higher fiscal spending from governments, to finance expenses from the refugee crisis, and slightly higher global demand”

- Johannes Mayr, head of economic research at BayernLB

The Euro zone investor sentiment index declined for a second month in a row to the lowest level since early 2015, as prospects for the US economy deteriorated and the German economy cooled. Sentix’s economic sentiment index for the Euro zone dropped from +9.6 points for November to +6.0 in December, the lowest since April. At the same time, the expectations index plunged to 1.5, down from 6.3 a month earlier, the lowest level since November 2014. Investor confidence in Germany, the Euro zone’s number one economy, hit its weakest point since November 2014, with the corresponding gauge falling to 14.5 in February from 18.1 a month earlier. The expectations index plunged to –2.6 in the current month down from 1.8 and the current situation index retreated from 35.6 in January to 33.

Meanwhile, the ECB’s Executive Board member Benoit Coeure said another boost to QE programme is possible and policy makers are now discussing about which assets and what amount should be purchased ahead of the March meeting. The ECB’s measures are working, but the central bank is ready to deploy more stimulus to get inflation to the targeted level. Coeure also added that the current period of ultra-low interest rates will last as long as needed, saying the ECB did not work under market pressure.

USD

“The fact that payroll gains fell back to earth is not necessarily a bad sign. Most indications are that the job market in the U.S. is on solid footing and improving”

- Nariman Behravesh, chief economist at IHS

The US labour market started the year on a weaker footing, the Fed’s comprehensive measure showed. The Labor Market Conditions Index dropped to 0.4 points in January after a revised 2.3 points in December, reaching the lowest reading since April 2015. The indicator averaged 1.9 points in all of last year, compared with 5.2 points in 2014. The January labour market report confirmed a slowdown in job creation after a rapid growth late in 2015 amid unusually warm weather. Rising wages and the unemployment rate at an eight-year low signalled the labour market recovery remains strong. Non-farm payrolls rose by 151,000 jobs last month, missing expectations for a 190,000 gain and following 292,000 new jobs created in December. Yet, it appeared to be enough to push the US jobless rate to 4.9%, down from 5.0%, the Labor Department reported. In January, all the employment gains were in the private sector, which added 158,000 jobs. The services sector dominated the payrolls increase last month, with 118,000 jobs created. In addition to that, average weekly earnings increased 12 cents an hour or 0.5% on a monthly basis, translating into a 2.5% annualized gain. Until recently, wage growth has been the one factor missing from America's recovery from the recession. As the unemployment rate remains low, many economists expect Americans to see paychecks increase. Fed Chair Janet Yellen is due to reveal a detailed assessment of economic trends this week when she delivers the semi-annual monetary policy report to Congress.

JPY

“The weakness in exports seen in the latter half of 2015 is likely to remain”

- Yuichiro Nagai, an economist at Barclays Securities Japan Ltd

Japan logged an 18th current account surplus in a row amid a plunge in crude oil imports and a travel surplus due to the Japanese Yen’s depreciation. In the final month of 2015, Japan reported a current account surplus of 960.7 billion yen, compared with 225.9 billion yen a year earlier, according to the Finance Ministry. Trade exports increased 5.5% to 6.247 trillion yen, while imports dropped 2.2% to 6.059 trillion yen. In 2015, the nation’s current account surplus surged more than six fold from the previous year to 16.64 trillion yen, with imports slumping 10.3%, while exports rose 1.5%.

Japan has been relying heavily on energy imports since the March 2011 Fukushima nuclear catastrophe, with most of the country’s commercial reactors remaining shut down. Oil prices are likely to continue to be a major driver influencing Japan’s trade balance, as exports are predicted to remain weak this year. The average crude oil imports plummeted 41% as average oil prices almost halved to $55 per barrel in 2015. In addition to that, a record travel surplus of 1.12 trillion lifted the current account balance, as the Yen’s weakness attracted foreign visitors to Japan. The number of foreign tourists visiting Japan surged 47.1% in 2015 from a year earlier to a record 19.74 million. The Japanese Yen lost 14.5% versus the US Dollar from the previous year to trade at 121.09.

CAD

“Interest rates affect all parts of the economy and are too blunt an instrument to address an imbalance in just one part of the economy - household credit”

- Timothy Lane, Bank of Canada Deputy Governor Canada’s building permits jumped more than expected in December, boosted by increased construction intentions for multi-family homes. According to Statistics Canada, the total value of building permits issued by Canada’s municipalities in December surged 11.3% to C$6.92 billion, whereas analysts had projected a 6.2% rise. However, November's figure was downwardly revised to 19.9% from 19.6%. Measured on an annual basis, permits issued dropped 1.6%. Residential building permits soared 16.3% as plans to build multi-family dwellings such as apartments and condominiums advanced 39.1%. On the other hand, other residential data disappointed. Canada’s housing starts dropped for a second month in a row in January, led by weakness in provinces, which got hurt by declining oil prices and rising unemployment rates. The seasonally adjusted annual rate of housing starts dropped to 165,861 units from the downwardly revised 172,533 in December, whereas analysts were projected to see 185,000 starts.

Meanwhile, the Bank of Canada said that its benchmark interest rate should not be considered the primary tool responsible for supporting Canada’s financial system. Other regulatory measures are required to help keep financial stability and address any emerging vulnerabilities.

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