Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The politics of austerity, of higher taxes, decided by governments, have lengthened the economic crisis”

- Arnaud Montebourg, ex Minister of Economy

Amid rapidly falling popularity of Francois Hollande in France, French President ordered his Prime Minister Manuel Valls to form a new government as a response to the recent comments of outgoing Economy Minister Arnaud Montebourg, who criticized France's economic direction as well as Germany's economic policies of austerity measures, which dragged France and Europe into the worst economic crisis since the 1929 Depression. Unemployment rate in France remains stubbornly high, the economy is faltering, failing to reach the government's estimated 1% growth this year. On top of that Hollande needs Brussels to relax its budget deficit targets for France for a third time. This is the second cabinet reshuffle in less than six months under Hollande’s leadership. Meanwhile, Hollade’s approval rating has been swiftly plunging, hitting 17%, the lowest presidential rating ever in the Fifth Republic.

Hollande and Valls outlined their solution to the economic crisis in the Responsibility Pact, providing businesses with tax breaks of some 40 billion euros in exchange for the creation of 500,000 jobs over three years. Hollande has planned to finance the Pact with 50 billion euros in spending cuts. It is exactly the plan, which has angered the left wing of the party. Montebourg argued that part of the money should be used for household tax cuts to lift domestic demand.

USD

“When you get past the volatility of the aircraft, what you’re seeing is continued firming in core business spending”

- Tim Quinlan, an economist at Wells Fargo Securities LLC

Orders for long-lasting manufactured goods surged in July by the most on record amid strong international demand for commercial aircraft. The Commerce Department said on Tuesday durable goods orders, items ranging from toasters to aircraft that are meant to last three years or more, soared 22.6% in July after an upwardly revised 2.7% advance a month earlier. July's increase was the largest on record and well above economists' forecasts for a 7.5% advance. A U.K. air show helped spark a 318% jump in plane orders, the most since January 2011. Meanwhile, orders for autos jumped 10.2%, a adding to signs of firming manufacturing activity, after declining 1.3% in June. Excluding transportation, orders, however, fell 0.8%, posting the biggest decline in this category since a 1.7% drop in December.

Despite some weakness in July, analysts believe that stronger factory output will bolster economic growth in the second half of this year. The government will revise its first estimate of GDP on August 28. Many economists believe that the figure will be revised down slightly but remain at a still robust 3.9% growth rate. Economists expect strength in employment, manufacturing and consumer spending to support healthy growth of around 3% in the second half of this year.

GBP

“After many challenging years, manufacturers are now literally paying their employees back for their support to keep jobs and businesses going.”

- Jeff Neild, EFF's Legal leader

The U.K records growth in manufacturing sector and it is predicted to expand as high as 2.7% in the current year, surpassing growth rate of the overall economy at 2.4%, as well as outperforming previously revised expectations of manufacturing contraction by 0.1% and economic growth rate of 1.4%. Additionally, it has been reported that wages across the manufacturing sector grew by a solid 2.6% during the first six month, at the same time surpassing the average pay level growth in the economy, and the average number of deferments and freezes contract to 6.4%, following 14.6% in July. Although manufacturing Purchase Manager Index stayed at 55.4 in July, following 57.2 in June, experts explain the phenomena by overall sluggish global economics growth. Nonetheless, any figure above 50 indicates expansion.

Separately, latest British Banker's Association report indicated decrease in the number of new mortgages approved were down to 42,800, from the June's revised total of 43,200, falling behind experts’ forecast by a wide margin. Nonetheless, in comparison with same period a year earlier, mortgage approvals have surged by 12%.

After the numbers were released, the Sterling experienced modest decline against the Greenback, dipping 0.03% at $1.6574.

JPY

“Preparing infrastructure to make it possible to deliver yen and Japanese government bonds anytime, anywhere, is a step to support our long-standing objective to make the yen an international currency"

- Hiroshi Nakaso, BoJ Deputy Governor

The Bank of Japan is likely to keep its positive inflation outlook even as it revised its economic growth forecast downwards for this fiscal year in an October report, suggesting that the central bank will not ease policy further at least until the end of 2014. Nevertheless, policy makers remain cautious about exports outlook, a soft part of the Japanese economy that has failed to improve despite the support from a weaker Yen that provides Japanese exporters a competitive edge overseas. The Japanese government kept its economic outlook unchanged at its monthly report, arguing that the world's third largest economy is "expected to recover moderately" as the effect of a sales tax hike in April subsiding gradually. Japan's economy contracted 6.8% in the second quarter due largely to the tax-hike, prompting many analysts to downgrade their growth forecasts for the year ending in March to around 0.5%, just half the 1.0% expansion projected by the BOJ in July.

On top of that, the Bank of Japan is pushing to extend the global reach of the country's currency and bonds as part of a broader attempt to modernize Japanese financial markets. By trying to overhaul the international trading process for Japanese government bonds and the Yen, the BOJ is supporting Prime Minister Shinzo Abe's growth strategy, albeit in a much less visible way than the dramatic monetary easing programme it has embarked on for the past year and a half.