Afternoon analysis 18.04.2016

, author:

Piotr Lonczak

The EUR/USD is still steady. Volatility spiked in the commodity currencies. The zloty extended losses. It dropped against its all major pairs.

On Monday, the red color prevailed in the major markets. However, losses were rather limited and there was a willingness for a rebound. As a result, after a negative opening in the second part of the day, the indexes moved to neutral levels.

The major risk factor was the outcome of the meeting in Doha. Is spite of early optimism, the negotiations failed to reach an agreement to freeze the output level. Given the situation, the oil price posted severe losses. Later, the commodity rebounded, but it remained clearly below Friday's close. Currently, the probability of a price increase is rather small.

High volatility in the oil market affected the commodity currencies. The Russian rouble especially posted a significant drop. Nevertheless, as the situation calmed, the commodity currencies also rebounded.

Fed's comments

In today's speech, New York Fed President William confirmed the basis scenario for interest rates which assumes two hikes this year. He said that the central bank should act gradually and cautiously. Dudley added that he believes that the inflation rate will return to the two percent target within a few years, due to the strong labor market and receding the transitory factors.

Dudley's speech did not affect the EUR/USD. The major currency pair was steady around the 1.13 level.

The volatility in the EUR/USD market may return after the Wednesday's speech of ECB President Mario Draghi. The Frankfurt-based institution will decide on interest rates tomorrow. Sixty percent of analysts surveyed by Bloomberg, believe the ECB will eventually increase its stimulus. The majority pointed at the September ECB meeting as the most probable term of additional actions. If Mario Draghi confirms a similar scenario, the euro may decline.

Reports confirm expansion

Today, the CSO released data on the labor market. The reports showed an ongoing expansion. In March, employment increased 2.7 percent on a yearly basis - more than the 2.5 percent than was anticipated. In the prior month it increased 2.5 percent. The wage report was slightly below expectations. The average wage increased 3.3 percent against the 3.4 percent that was expected. Last month it rose 3.9 percent.

Over the next few days, reports on industrial production and retail sales are scheduled. The reports will probably confirm an ongoing expansion in the economy.

In spite of solid reports, the zloty was weak. The Polish currency did not exploit the opportunity to rebound and eventually dropped against all its major pairs. It could have been caused by the heightened political risk. It is likely that the zloty will remain rather weak in the short term. The basis scenario for the zloty is to stabilize with a tendency to decline.

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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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