This is the first in the series of fundamental analysis reports which I aim to publish within the first week of each month. I will focus on the four economy: Australia, Eurozone, UK and USA. You will find more emphasis on Australia because it is the economy that I am most familiar with. I will briefly go through the important economic data that has come out during the past month and make my analysis based on that.
At the end of the report I will state my views on the currency pairs.
Australia - Bearish
Interest rate was cut by 0.25% on Feb 3rd. Meeting minutes from the Reserve Bank of Australia suggests that another rate cut has already been planned for the year. The only question now is when that will happen. Unemployment was up 0.2% to 6.4% which is the highest it has been since 2001 and the top is still far away with car manufacturing to begin shutting down operations in 2016. Private capital expenditure, the money spent by private companies to expand their operations, have fallen sharply beyond forecast. Australia's top export commodity by revenue is iron ore and it is still in free fall (see graph below, courtesy of Macrobusiness). The loss of revenue due to the price drop is far greater than any gains produced by a lower AUD. Personally I don't see how cutting rates would help the situation. Australia must remove its dependency on iron ore to better manage its risks.
Eurozone - Bearish
Greece has dominated the headlines this month when negotiations for its debt repayment began. At the moment Greece spends much of its money repaying interest on debts and Greece wants its debt either written off or refinanced at a lower rate. Of course this does not sit well with other EU members whose banks have been lending money to Greece. In the end, a 4 month extension has been granted. Month to month manufacturing has been down for Germany and France. The only positive figure for Eurozone in Feb was the German preliminary CPI which came out above forecast.
United Kingdom - Neutral
Head of Bank of England Mark Carney said they are happy with inflation despite how low it is. He hinted that the next move in interest rate would be up not down. I feel that this is purely just talk because all nine members of the Monetary Policy Committee vote for no change. Just in January we saw 2 members voting for a hike but now they have changed their mind. There are good news for UK: 0.1% drop in unemployment and wages growth have been greater than inflation. The biggest concern for UK that I can see is from its largest trading partner the Eurozone.
USA - Bullish
USA economy had a great run in 2014 and market is watching the Feb closely for a rate hike. In the last statement, the wording suggests that the Fed will raise rate when they are satisfied that economic growth has met their expectation. Since then, Preliminary GDP quarter-to-quarter and core CPI month-to-month has come out better than forecast. Next week's Non-Farm Payroll will be the figure to watch out. If it is as forecast or better, it would make it 6 months in a row.
My views:
AUDUSD - Bearish
GBPAUD - Bullish
EURAUD - Neutral
EURUSD - Bearish
EURGBP - Slightly bearish
GBPUSD - Slightly bearish
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