Daily Forex Fundamental Overview

Fundamental Analysis

Key highlights of the week ended January 13

Euro zone

The Euro zone's trade surplus expanded more than expected in November, hitting €22.7 billion, Eurostat reported. Other data r ele ased last week showed German business sentiment rose to its highest level in seven months in January, though less than expected, as the Munich - based ZEW institute said its Economic Sentiment Indicator for Germany rose 2.8 points to 16.6 in the reported month, falling behind analysts' expectations of a monthly improvement to 18.4. However, the latest score was the strongest since June. Consumer prices in th e Euro zone climbed to a 38 - month high in December in line with analysts' expectations According to Eurostat, the headline CPI and core CPI came in 1.1% and 0.9% year - over - year in November, respectively. Last week, the ECB left its monetary policy unchanged at its January meeting on Thursday, as underlying inflation trends and the region's economic recovery remained subdued.

US

Manufacturing activity in the State of New York dropped more than expected in January, results of the latest The Empire State Manufacturing Survey showed last week. The New York Federal Reserve reported factory activity across the region fell to 6.5 points from Decemb er's 9.0 points, while market analysts anticipated a slight decrease to 8.1 in January. Also, the Labor Department reported last week th at more expensive gasoline and rental accommodation boosted US consumer inflation last month. However, the Fed's preferred inflation mea sure, the core PCE, remained below the Central bank's 2% target at 1.6% in December.

UK

British consumer prices showed solid growth in December, due to the weak Sterling. The Office for National Statistics report edits Consumer Price Index rose 0.5% to 1.6% year - over - year in December, compared to the preceding month's 1.2%, above market expectations for a 1.4% hike. It was the strongest expansion since 2014. According to the latest forecasts, the further rise in UK inflation is likely to force the Bank of England to tighten its monetary policy. However, any reading above the 0 point - level points to expansion in the manufacturing sector. The unemployment rate in Britain held steady last month, while the number of unemployment benefit claims declined.

Canada

As markets expected, the Bank of Canada left its benchmark overnight rate on hold at its January policy meeting on Thursday, where it has been since the middle of 2015. The decision to keep the key interest rate at 0.50% was driven by high uncertainty surrounding Trump's presidency. Moreover, on Thursday of last week, Statistic Canada manufacturing sales rebounded sharply in November, helped by the primary metals, petroleum and coal industries.

GBP

"December's data delivered some unpleasant omens for this year . The squeeze on households' real incomes is gradually tightening, implying a tough 2017 for retailers".

- Martin Beck, EY ITEM Club

British retail sales dropped markedly last month amid higher prices, linked to the weaker Sterling. The Office for National Statistics reported retail sales dropped 1.9% in December, worse than an expected 0.1% fall. That was the largest decline since April 2012. Meanwhile, the November gain of 0.2% was revised down to –0.1%. December's weak retail sales most probably dampened economic growth in the last quarter of 2016. Markets suggest the economy grew at an annualized pace of 1.2% in the Q4, compared to the preceding quarter's 1.8%, since the British economy was mainly boosted by consumer spending since the June 23 referendum. In volume terms, annual ales fell to three-month lows of 4.3%, following November's 5.7%. Moreover, yearly shop price inflation hit 0.9%, the highest in three years, supporting the latest CPI report released by the ONS, which showed that consumer prices advanced 1.6%. In addition, earlier this week, the ONS reported that consumer prices rose at a stronger than expected pace last month. The weak December figure showed a strong contrast with reports received from major retailers, who enjoyed a fruitful Christmas season. Even though retail sales posted the biggest monthly fall last month, they managed to climb 4.3% on an annual basis. Following the release, the Pound dropped against the US Dollar, trading at $1.23.

CAD

"At the margin inflation is slightly firmer, but given the dovish nature of the Bank of Canada, the impact of this report will be very marginal ".

- Mark Chandler, RBC Capital Markets

Canadian consumer prices fell for the second straight month in December, official figures revealed on Friday. Statistics Canada reported its headline Consumer Price Index dropped 0.2% in December, following the preceding month's 0.4% fall and falling behind expectations for a reading of 0.0%. On an annual basis, the Index jumped 1.5%, after rising 1.2% in November. Nevertheless, economists anticipated an increase of 1.7%. Meanwhile, underlying inflation grew in a rage from 1.4% to 2.0% on a yearly basis. In terms of annual inflation, gasoline prices contributed most, climbing 5.5% on yearly basis in December. Although the following increase was offset by the price of food, which declined 1.3% year-over-year. The Bank of Canada expects inflation to move closer to its target of 2% in 2017, suggesting that higher energy prices will offset weak food prices. Separately, Statistics Canada reported retails sales advanced 0.2% in November, missing a 0.5% gain forecast. A report also showed October's 1.1% rise was revised up to 1.2%. Furthermore, core retail sales grew 0.1% in the same month, meeting projections but falling from October's 1.4%. Sales saw growth in five out of 11 categories. In the report, Statistics Canada said that retailers reported mixed result in November due to Black Friday, the so-called Super Bowl of the retail selling season.

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