Afternoon analysis 20.12.2017

20.12.2017 15:46|Bartosz Grejner

The dollar's quotations without major changes. The zloty was slightly weaker after information from the EU about triggering art. 7. against Poland.

Limited dollar fluctuations

Today there are no major publications that could have a significant impact on the dollar or the euro. As a result, the dollar index (DXY), measuring its strength in relation to the six main currencies, oscillated around 93 points, close to yesterday's closing. For most of the day, the EUR/USD pair was in a narrow range of 1.184-1.185.

The yields of the US Treasury bond increased. The maturing in 10-year bonds increased to about 2.493% around 3.00 p.m., the highest level since mid-March. Although the dollar is insensitive to these changes, they may indicate that market participants expect higher inflation and higher interest rates due to the planned tax reduction.

Slightly weaker zloty

The Polish Press Agency (PAP), around midday, informed that the European Union has launched Article 7 against Poland, which does not mean sanctions yet, but opens the way for them. In response to this information, the zloty depreciated slightly. Before this information, the EUR/PLN quotations were below the 4.20 level, but after its publication, they increased to nearly 4.21. Till 3.00 p.m., the EUR/PLN valuation returned to the 4.20 level.

In relation to the dollar, the zloty maintained a relatively good valuation. The USD/PLN quotations fell to the 3.54 boundary today, setting the lowest rate since December 5th. However, this is mainly due to the global dollar's weakness. Moreover, it seems to be short-term and mainly caused the recent FOMC meeting and the lack of signs of rising inflation.

In the longer term, lower taxes are likely to stimulate price increases in the US, which will probably translate into a stronger dollar. The yields of the US Treasury bond have gradually increased in recent days. This may increase the probability of the dollar strengthening in the short term.

The calendar of scheduled macroeconomic publications is practically empty. In the context of the zloty, the sentiment of the US market will play a significant role. Currently, futures contracts for the main indexes indicate a positive opening, despite the fact that most of the European indexes are losing value. The weakening of US indexes in the evening hours, combined with today's reports of art. 7. being launched against Poland, may cause slight supply pressure on the zloty.

Tomorrow's preview

In recent days a notably weaker dollar was observed. Its worse condition was visible after the recent meeting of the Federal Reserve Monetary Committee (FOMC) when two members voted against the increase in interest rates.

Tomorrow, data that may slightly strengthen the US currency may be published. The US Department of Labor will publish a weekly report on initial jobless claims. Last week, the number of submitted jobless claims surprised in a positive way, it amounted to 225k (expected 235k) and reached 44-year records from mid-October (223k). The median of expectations indicates an increase to 231k.

The Bureau of Economic Analysis (BEA) will present final data on the economic development pace of the US in Q3 at the same time. Although it was initially expected to grow between 2.5 and 2.6% per year, preliminary estimates already indicated that GDP grew at a 3% pace. The second reading also positively surprised with the growth pace of 3.3%, the market expectations for the final data.

If a positive picture appears from both publications (especially in the case of a higher than expected GDP growth pace in Q3), dollar strengthening can be observed, taking into account the relatively high yields of the US Treasury bond.

 


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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 Cinkciarz.pl Sp. z o.o is prohibited.

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