Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The overall situation of the European economy makes it abundantly clear that we cannot wait for a miracle to end a period of low growth. We are not out of the danger zone”

- Yves Mersch, ECB Executive Board member

While German activity in the manufacturing sector unexpectedly rose in October, France continues to experience a decline in the corresponding gauge. The flash manufacturing PMI came in at 47.3, down from 48.8 in September and further below the 50-mark threshold, which separates expansion and contraction. The recent report of the Bank of France showed the sentiment indicator in the manufacturing sector declined to 96 in September from 97 a month earlier. On top of that, business activity in the nation’s services sector also stayed in the contraction territory, with the corresponding reading falling to 48.1, down from 48.4 seen in September. In Germany, however, Markit’s preliminary PMI for manufacturing sector surprisingly rose to the green zone, reaching 51.8 in October, up from September’s 49.9. Business activity in the service sector waned somewhat, with the respective reading sliding to 54.8 in the reported month. Another big surprise on Thursday became unemployment data from Spain, as the nation’s jobless rate decline in the third quarter to 23.7%, down from 24.5% in the prior three-month period. Nevertheless, Spain’s unemployment rate still remains at unhealthy high level.

The European economy is still in the danger zone, ECB official Yves Mersch said, urging further financial integration in form of a capital markets union to remove remaining hurdles to growth.

USD

“The labor market is continuing to get better”

- Robert Stein, deputy chief economist at First Trust Portfolios LP

The number of Americans seeking unemployment benefits increased last week, yet remained near the lowest level in 14 years, adding to further evidence of improving labour market. Initial claims for jobless benefits rose by 17,000 to a seasonally adjusted 283,000 in the week ended 18 October, the Labor Department reported. The reading came in slightly higher economists’ forecasts for the 282,000 claims. Also, unemployment claims for the preceding week were revised upwards by 2,000 to show 266,000. The four-week moving average for initial claims, which is considered to be a better gauge as it smooths out week-to-week volatility, dropped 3,000 to 281,000, the lowest level since May 2000. Adjusted for population growth, initial claims are hovering around the all-time low. The low level indicates increased optimism on the part of employers as the economic recovery gains momentum. Employers are now less likely to lay off employees, though they have also become more cautious about hiring new ones.

A tepid jobs recovery since the recession has accelerated this year. Payrolls have risen an average 227,000 a month through September, putting 2014 on track to be the year of strongest job creation since the late 1990s. The Fed officials have reiterated their pledge to keep interest rates at their current level near zero for a "considerable time" to prop up an ongoing recovery in the labour market.

GBP

“The real task for policy is to understand - and then adapt to - economic forces affecting the natural, or equilibrium rate of interest”

- Ben Broadbent, BoE Deputy Governor

Retail sales in Britain declined more than expected in September, as clothing sales experienced the biggest decrease since April 2012. The volume of sales dropped 0.3% from August, with clothing and footwear falling 7.8% as many consumers delayed buying winter clothing due to unseasonably warm September, the Office for National Statistics reported. Economists, however, had expected a 0.1% slide. Sales excluding fuel also dropped 0.3% following a negatively revised increase of 0.2% a month earlier. Nevertheless, year-on-year data showed total retail sales rose 2.7% compared with September last year, while core retail sales advanced 3.1%. Meanwhile, UK’s manufacturing sector continued to recover in October, the Confederation of British Industries said. However, the sector is facing headwinds, including global political instability, increasing concerns about weakness in the continental Europe and recent strengthening of the Sterling, which weighs on export demand.

In the meantime, the Bank of England Deputy Governor Ben Broadbent said the central bank’s interest rates hikes will be gradual and limited, as headwinds to economic growth and long-term downward pressures on borrowing costs disappear. He also said that current very low inflation will rise as productivity improves.

NZD

“A hike in mid-2015 is now more likely”

-Ben Jarman, JP Morgan economist

The New Zealand Dollar weakened versus the Greenback after the release of inflation data, which disappointed market participants to the downside. Inflation slowed more than expected in the third quarter and the RBNZ forecast, giving Governor Graeme Wheeler ample room to keep borrowing costs on hold for longer following four lifts between March and July this year. The consumer price index climbed 1% in the three months through September from the previous year, following a 1.6% rise in the previous quarter, Statistics New Zealand reported. The reading fell considerably below the central bank prediction of 1.3%. The economy has been growing strongly for some time now, yet inflationary pressures remain surprisingly well contained. The New Zealand Dollar dropped to 78.71 U.S. cents from 79.09 cents immediately before the release.

Governor Wheeler on 11 September said the central bank will keep rates unchanged for an extended period to evaluate how a previously strong nation’s currency, falling commodity prices and earlier tightening would affect the New Zealand economy. The RBNZ lowered its inflation outlook, predicting it will not reach the midpoint of the 1%-3% target band until the second half of 2016, a year later than it forecasted in June.

CNY

“The headline number has gone up, above consensus so we could probably be reasonably cautious about the economy and be okay with the idea that the economy is stabilizing”

-Jonathan Garner, emerging market equity strategist at Morgan Stanley

Business activity in the Chinese manufacturing sector picked up to the highest level in three months in October, easing concerns over the pace of the nation’s economic growth. The flash HSBC Manufacturing PMI gained to 50.4, up from the final September reading of 50.2. The Australian Dollar, China-dependent currency, was little changed versus the Greenback following the data release. Despite a modest increase in the gauge, a breakdown of the data showed output declined to 50.7, the lowest level in five months, new orders also slowed. The key employment component also fell for a 11th straight month, fuelling speculation of further stimulus from policymakers. Chinese authorities have repeatedly stressed their willingness to tolerate slowed growth as long as the labour market remains resilient. Economic growth in the third quarter fell to 7.3% year-on-year, down from 7.5% in the second quarter. While the data is positive by most standards, it marks China’s poorest economic performance since 2009.

Concerns over China’s growth have been building since the beginning of the year on a slump in housing prices and worries about out-of-control lending. The export sector, a key growth engine of China’s economy, has also been undermined as the rest of the world struggles with its own economic problems.