Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“Spain’s recovery has gathered speed, but unemployment is still very high. Growth has picked up and is expected at 3.1 percent in 2015 and 2.5 percent in 2016, well above the euro area average”

- International Monetary Fund

Business morale in France rose to the highest level in four years amid low oil prices and a weaker Euro. Business confidence index climbed to 100 in August, the highest reading since 2011, according to INSEE. Analysts, however, had predicted the gauge to remain at 99, the same level as in July. The improvement in the French business climate indicates the Euro zone’s second biggest economy is recovering, even though economic data remain dismal. The French Finance Ministry and the International Monetary Fund expect that economic growth in 2015 will reach 1%, compared with an average of less than 0.5% in the previous three years.

Meanwhile, the Spanish economy managed to maintain momentum seen in the first quarter, as the nation’s economic output rose further in the three months through June. According to the final GDP data, the Euro bloc’s fourth largest economy grew 1.0% on quarter in the April-June period, after expanding 0.9% in the beginning of the year. The data marked the eighth straight quarter of continuous economic growth in Spain. When measured on an annual basis, the economy added 3.1%, compared to the first quarter's 2.7% increase. Analysts had expected confirmation of 3.1% GDP growth as estimated by preliminary figures.

USD

“Businesses have bounced back after the bad winter disrupted production and demand, and consumers are gradually earning and spending more”

- Stuart Hoffman, chief economist at PNC Financial Services

The US economy grew more than previously estimated in the second quarter, supported by robust consumer and business spending. The world’s number one economy expanded at an annual rate of 3.7% in the April-June quarter, more than a percentage point greater than the 2.3% originally estimated, according to the Commerce Department. It was the strongest growth since last summer and marked a great improvement from the anaemic 0.6% increase during the January-March quarter when a harsh winter undermined activity. Economists believe growth has slowed in the current quarter to around 2.5%. Some have expressed concern that shrinking global stock markets and a steep slowdown in China will further weaken the economy in coming months. The revision for second quarter growth reflected an advance in consumer spending, which rose at annual rate of 3.1%, up from a 1.8% growth rate in the first quarter. Business investment in structures and equipment was revised higher to show growth of 3.2%, while housing construction was revised up to a surge of 7.8%. A separate report showed the number of Americans applying for first-time jobless benefits dropped last week, suggesting the labour market remains healthy. Initial jobless claims declined by 6,000 to a seasonally adjusted 271,000 in the week ended August 22, the Labor Department said. The drop comes after four consecutive weekly increases.

JPY

“You can't stop overseas headwinds with policy measures, so it will be a waste of money”

- Taro Saito, senior economist at NLI Research Institute

Japan’s retail sales rose more than expected in July, adding to tentative signs consumption will support the economy and drive it back to growth in the third quarter. Retail sales jumped 1.2% on month in July, according to the Ministry of Economy, Trade, and Industry, coming in higher than the expected pace of 0.6%. The annual rise in sales accelerated from 0.9% in June to 1.6% last month, overshooting the median consensus forecast of 1.1%. Data published shortly before the retail sales report, however, showed household spending dropping 0.2% on an annual basis in July, against the expected 0.9% rise. Consumer spending has been patchy since the Japanese government hiked the sales tax in April 2014, leading to a recession and driving a contraction in GDP growth last quarter.

A separate report showed Japan's inflation rate dropped to its lowest level in more than two years in July. The inflation rate in July was 0.2%, compared with the 0.4% a month earlier, hitting the lowest level since June 2013. Core inflation, excluding volatile components, remained flat. The gloomy data, coupled with weak exports due to China's slowdown, reinforces the dominant market view that any recovery from the 1.6% contraction in April-June will be modest.