Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“Mario Draghi did not call for a complete U-turn in the euro zone fiscal consolidation strategy, nor did he signal an imminent monetary stimulus on top of the measures announced in June”

- Frederik Ducrozet, senior euro zone economist at Credit Agricole

The economic releases for Thursday provided further indication that the Euro zone might currently be contracting as the news were mainly disappointing. The day started with Spain’s GDP data, which was in line with expectations at 1.2% for the year. Furthermore, Spain’s HICP was better than expected at -0.5% but clearly, it did not show too much promise staying in the negative territory. Next, the German employment data did not provide a reason for an improved outlook. While the jobless rate remained at 6.7%, the unemployment change showed that the number of unemployed increased by 1K compared to the predicted decrease of 5K and the previous decline of 11K. Lastly, all of the German inflation index numbers came out as predicted. Nevertheless, for the month the indexes remained unchanged, which might reduce the possibility of reaching ECB’s 2% inflation target.

In addition, the Italian data was arguably the most disappointing. Compared to the previous year the retail trade index fell 2.6% in relation to the fall of 0.4% the month prior, even as there was no change month-on-month. Moreover, business confidence in Italy fell drastically from 99.1 to 95.7. The releases for the whole Euro zone mostly were also below expectations. Notably, private loans decreased 1.6% for the year.

USD

“The economy is clearly doing better”

- Jim O’Sullivan, chief U.S. economist at High Frequency Economics

The U.S Department of Labor's latest report indicates that the number of jobless claims have slightly decreased during seven-day period, nonetheless surpassing experts’ forecast. The number of jobless claims has decreased from 299,000 down to 298,000, helping push the eight-week average for new claims to below 300,000 for the first time since April 2006, well before the onset of the recession. Economists, however, predicted the number to remain on the 299,000 level. Meanwhile, according to the continuing claims report, number of people currently receiving benefits after an initial week of aid increased to 2.52 million from 2.50 million in a weeks period, falling behind experts’ forecast of 2.51 million.

Separately, another report by the U.S Commerce Department has indicated that U.S economy expanded faster than first thought, growing by 4.2% in the second quarter and beating the government’s initial reading of 4%, following a 2.1% contraction in a period before. That was the economy's biggest drop since the depths of the Great Recession, and it reflected mainly the impact of a harsh winter that kept consumers away from spending and disrupted factory production. Additionally, corporate profits have climbed by the most in nearly four years. Experts explain the phenomena by an increase in durable goods demand, strengthening job market and increase in consumer spending, which accounts for roughly 70% of the economy.

GBP

“The high streets have been bustling with shoppers this summer and it is good to see firms so optimistic about their business prospects for the next three months - higher than at any time since 2002”

- Katja Hall, CBI Deputy Director-General

The U.K reported retail sales to advance in this year to August period, beating experts’ forecast by wide margin. Furthermore, the numbers for the next quarter are said to be the most optimistic ones since 2002. According to Confederation of British Industries, overall sales balance surged by +37 compared with a +21 increase a month earlier, with furniture retailers and grocers experiencing the biggest boost in sales. Total retail sales volume rose slightly above 0.1% in a period between June and July, and sales excluding fuel increased by 0.5% above market expectations. Additionally, the numbers released indicate significant sales growth rate in the whole quarter in comparison with a period before, from 0.6% to 1.5%, respectively. Forecasts for September were even more optimistic, with 49% of retailers expecting sales to be up on the same month last year and only 7% expecting them to drop. Experts therefore predict substantial gross domestic product boost from consumer spending in the second quarter. The CBI said more than 140 companies participated in the survey, which was conducted between the July-August period.

The final estimates for Gross Domestic Product will be released on 30th of September, yet the second revision already had positive changes showing growth rate of the economy of 0.8% and annual second-quarter growth change from 3.1% to 3.2%.

JPY

“While the inflation rate is steady, the pace of recovery in consumption and business activity is sluggish"

- Economist at Norinchukin Research Institute.

The recent fundamentals from the world’s third largest economy showed uneven economic recovery, as the consumption tax increase in April continue to affect growth. Inflation rate in Japan remained unchanged in July after slowing a month earlier, underscoring challenge for Governor Haruhiko Kuroda in achieving the BoJ’s goal. Nationwide core consumer price index rose 3.3% in July, in line with expectations, but when stripping off the effect of the April tax hike core inflation was at 1.3% in July, below the inflation target that the Bank of Japan promised to meet sometime next year. The nation’s central bank has forecasted that consumer prices will advance about 1.25% for some time before accelerating to hit its 2% inflation goal. Any weakness in inflation following the slowdown in the economy last quarter, when GDP contracted an annualized 6.8%, may mount pressure on Kuroda to embark on more stimulus. In the meantime, another report showed that household spending fell 5.9% in July from the same period last year, much larger than the 3% drop forecasted by economists, and after plummeting 3% in June. Retail sales, however, showed a slight improvement, inching higher 0.5% year-on-year in July, above expectations for a 0.1% increase, and bouncing back from the 0.6% drop in June. Meanwhile, after a sharp 3.4% drop in June, industrial output edged up 0.2% in July. This was much smaller than the 1.2% forecast, prompting the government to keep its assessment that industrial output is trending on a "weak note."

CAD

"Look for a further move toward balance over the coming year, though a surplus remains a long way off barring a meaningfully weaker C$”

- Benjamin Reitzes, BMO Capital Markets senior economist

Canada's current account deficit narrowed slightly in the June quarter to register the smallest gap in more than two years as exports rose to record dollar value and foreign investment remained strong. According to Statistics Canada, the shortfall was 11.87 billion Canadian dollars, compared to the revised C$12.03 billion in the three months through March. Economists, however, had expected current account deficit of C$11.80 billion. The data showed that Canada's exports gained momentum in the second quarter, with total exports rising by 3.0% to hit a record C$132.35-billion amid higher shipments of motor vehicles and parts, grains and forestry products. Nevertheless, exports of energy products, which accounted for 25.4% of all exports in the April-June quarter, declined by 3.5% to C$33.64-billion. Canadian economists remain upbeat, forecasting the export sector to continue its recovery, leading to better output and driving the current account towards a balance in the future. Meanwhile, total imports increased by as much as 3.2% to C$130.72-billion on greater imports of motor vehicles and parts, consumer goods, chemical plastic and rubber products.

The U.S. Dollar strengthened versus its Canadian counterpart on the back of strong U.S. economic growth data and jobless claims report, recovering from one-month trough. USD/CAD rebounded from 1.0837 to fetch 1.0857 during early U.S. trading session.