European Fundamentals Fail to Impress, Weighing on the Outlook for Growth

Fundamental Headlines

• As Red Ink Spills, Ford Drains Credit Lines – Wall Street Journal
• Amazon's Sales Surge, Bucking Retail Slump – Wall Street Journal
• Honda cuts forecasts for fourth time – Financial Times
• NEC Will Cut More Than 20,000 Workers, Forecasts Loss – Bloomberg
• Daimler, GE Take Their Appeal for Stimulus-Bill Funds to Senate – Bloomberg

EURUSD – The outlook for inflation in the Euro-Zone fell more than expected as the index reached its lowest level since the euro was introduced in 1999. The CPI estimate for January slipped to 1.1% from 1.6% in previous month, and as price growth falls below the ECB’s 2% target, policymakers may step up their efforts over the coming months as the risks for deflation intensify. Meanwhile, the unemployment rate increased for the fifth consecutive to 8.0% from a revised reading of 7.9% in November, which suggests that the real economy is now feeling the spillover effects from the financial crisis, and the labor market is likely to deteriorate further as firms continue to face financial uncertainties. The data continues to reflect a dour outlook for the euro-region as growth prospects deteriorate at a rapid pace, and alleviating price pressures should allow the European Central Bank to ease policy further over the near-term as policy makers maintain their one and only mandate to ensure price stability. Discuss the topic and your trade ideas in the EUR/USD Forum.

GBPUSD – Mortgage approvals in the U.K. increased to 31K from a record low of 27K in November, but as the banking sector remains under stress, the downturn in the housing sector may only get worse as credit conditions remain far from normal. Meanwhile, private lending slipped to a three-month low of 0.3B from a revised reading of 0.7B in November, and conditions are likely to get worse as Europe’s second largest economy faces its worst recession in over a quarter century. Nevertheless, as the outlook for growth remains bleak, the Bank of England is expected to ease policy further over the following week, which could weigh on the British pound as the central bank adopts a zero interest rate policy (ZIRP). Discuss the topic and your trade ideas in the GBP/USD Forum.