Daily Forex Fundamental Overview

Fundamental Analysis

EUR

"A very substantial degree of monetary accommodation is needed for euro area inflation pressures to build up and support headline inflation in the medium term. If warranted to achieve its objective the Governing Council will act by using all the instruments available within its mandate."

- Mario Draghi, ECB

As markets expected, the European Central Bank left its monetary policy unchanged at its January meeting on Thursday. Following the policy meeting, the ECB President Mario Draghi said the Euro zone's economic recovery remained subdued. Moreover, the ECB President stated at the post-meeting press conference that the region's economic growth is unlikely to gain momentum in the upcoming months due to the slow pace of structural reforms. According to Draghi, fiscal policies should also support the Euro zone's economic recovery within the European Commission's system of rules. The headline inflation rate is expected to rise more in the short-term, driven by higher energy prices. In the meantime, the Central bank said that underlying inflationary pressures in the region remained benign. However, the ECB expressed hopes for an increase in core inflation over the medium term. The EUR/USD pair hit its daily low of $1.0607, following Draghi's comments on inflation. The Central bank pointed to an upstick in manufacturing activity and rising confidence indicators. Nevertheless, it signaled it was ready to provide additional monetary stimulus if economic conditions worsen. Back in December, the Bank cut its monthly asset purchases to 60 billion euros but extended the QE program by six months until at least March 2017.

USD

"When you look at single-family [construction] we're still at recession levels, which is quite remarkable because historically the real-estate cycle leads the business cycle".

- Sam Khater, CoreLogic Inc

US homebuilding activity advanced more than expected in the last month of 2016, official figures revealed on Thursday. The Commerce Department reported housing starts rose 11.3% to a seasonally adjusted annual pace of 1.23 million in December, following the previous month's upwardly revised 1.10 million units and surpassing analysts' expectations for a 1.19 million-unit rate. The December increase suggested the housing market boosted economic growth in the Q4. Meanwhile, building permits came in at a seasonally adjusted annual pace of 1.21 million units in the same month, unchanged from November's upwardly revised reading, slightly missing economists' projections of a 1.22 million-unit rate. Separately, the Philadelphia Federal Reserve said its Manufacturing Index jumped to 23.6 points in January, the highest level in more than two years, driven by a rise in new orders, which climbed to 26.0 from 14.90. Analysts anticipated a sharp fall to 16.2 points in January from the prior month's 21.5. Data also showed the Employment Index surged to 12.8 from 3.6, while the Business Outlook Index for the next six months hit its highest level since August 2014 of 56.6 points. Other data released on Thursday showed initial jobless claims fell 15,000 to 234,000 last week, the lowest level in more than 43 years.

CAD

"This was a good report, with a solid headline print in both dollar and volume terms and positive revisions to boot".

- Michael Dolega, TD Bank

Canadian manufacturing sales rebounded sharply in November, helped by the primary metals, petroleum and coal industries. Statistics Canada reported Canada's manufacturing sales advanced 1.5% month-over-month in November, following the preceding month's upwardly revised gain of 0.6% and topping analysts expectations' for a 0.2% increase. That was the largest increase since April, when sales climbed 1.6%. Sales picked up in 14 out of the 21 industries, accounting for 68% of Canadian manufacturers' profits. In volume terms, sales rose 1.2% in the eleventh month of the year. In the primary metals industry sales advanced 9.1%, after falling for two straight months. Sales of petroleum and coal products grew 3.7%, as oil refineries resumed production in full after maintenance works. In Canada's chemical manufacturing industry sales climbed 3.4%, posting the fifth straight monthly rise. Back in November, manufacturing sales rose in 10 provinces with Alberta and Quebec contributing most to the overall monthly increase. Separately, Statistics Canada reported foreign investments in the government's securities declined more than expected in November. Purchases of Canadian securities dropped to C$7.24 billion in the reported month, compared to October's revised C$15.77 billion, whereas analysts penciled in a fall to C$10.23 billion.

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