Afternoon analysis 16.04.2015

, author:

Piotr Lonczak

Poor reports from the United States pushed the EUR/USD higher. The zloty dropped against all its major pairs, except the dollar. The anxiety around the Greek crisis is rising, although it has not affected the euro.

Once again, the economic releases from the US missed expectations. After weaker than expected numbers on retail sales and industrial production, today the figures concerning the labor market and the housing market, didn't manage to meet the forecast.

Weekly data on unemployment claims unexpectedly increased to 294k, from 282k in the previous week (revised from 281k) – a result above the 280k that was projected. Moreover, the data concerning the housing market also disappointed – the number of housing starts increased less than its projection, to 0.91 million annualized from 0.91 million, and the number of building permits dropped to 1.04 million from 1.1 million in the preceding period.

The headline reading allowed the EUR/USD to extend the correction. The move has been sparked by the weak numbers concerning retail sales on Tuesday, and enhanced by the industrial production data yesterday.

Will the rebound continue?

A deeper look into today's data, suggests that only the headline numbers were weak. Thus, the number of new unemployed persons has remained below 300k for a sixth week in a row, and the overall number of people receiving benefits is the lowest since 2000. Moreover, the March data concerning the housing market, suggests some rebound after deterioration caused by the severe winter at the beginning of the year.

Today, the yields on German nine year bonds dropped below zero for the first time in history, and the yield on ten year bonds is lower than 0.1 percent. Moreover, at the end of Wednesday's session, the average yield on the German bonds dropped to as low as minus 0.003 percent. As a result, the person who decides to hold the German debt to maturity, agrees to accept the losses.

The major factor influencing the debt market is the European Central Bank quantitative easing program. On Wednesday, the ECB president Mario Draghi said the QE will continue until the economy improves significantly.

In addition, the problems surrounding the Greek crisis are mounting. The factor is not affecting the euro, but its impact is present in the debt market. The uncertainty is pushing investor to sell risk assets, and buy more safe securities from the core countries of the eurozone.

'The Financial Times' said today that Greece asked unofficially the International Monetary Fund, to postpone debt payment. The country is expected to return 1 billion euro in two installments in May. The request was rejected. Earlier today, the German finance minister, Wolfgang Schaeuble, dismissed any further concessions to Greece.

Given the situation, the rebound in the EUR/USD is not likely to last for too long. The reports from the US probably have shifted the first interest rate hike to September, what is getting priced in. On the other side, the Greek uncertainty may pressure the euro, if the nation fails to meet the Eurogroup expectations.

Weaker zloty

After quite a good start of the week, the zloty is moving lower again. The Polish currency did not exploit the impulse from the Monetary Policy Council press conference, that showed that the monetary authorities are comfortable with the zloty's appreciation. On the other hand, the uncertainty concerning Greece is not in favor of risk assets.

The main scenario for Greece is that the nation will finally reach an agreement with the Eurogroup. The Greek government still has enough time to find a solution. If this risk factor is removed, the Polish currency will rather return to appreciation.

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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Sp. z o.o is prohibited.

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