Daily analysis 10.10.2017

10.10.2017 12:36|Marcin Lipka

The EUR/USD pair has been considerably higher after the fall of the dollar against the yuan during the Asian session. UK industrial production data is better than the consensus, but the traded goods deficit reached record high levels in August. The zloty is slightly supported by global sentiment and comments from Lukasz Hardt of the Polish MPC. The EUR/PLN slightly below the 4.30 boundary.

Key macro data (CET time - Central European). Estimates of macro data are based on Bloomberg data unless otherwise noted.

  • No macro data that can clearly influence the analysed currency pairs.

Yuan changes

The EUR/USD quotations during the morning trading in Europe are 40-50 pips above yesterday's levels, and the main currency pair is testing the 1.1800 boundary. Most of the increases currently seen were during the Asian session and were likely caused by the Chinese currency's appreciation in relation to its American counterpart.

The better condition of the yuan has been connected with the statement made by Zhou Xiaochuan (the President of the Chinese Central Bank) for Caijing magazine. Bloomberg’s findings from this interview suggest that China could try to reduce the capital’s control of movements and open its economy to more trade and investment. Willingness to introduce reform and release the peg to the yuan could also be a signal that the local economy is stable. More information on this subject can be found from reports from the Communist Party's Congress, which will begin on October 18th.

The yuan's strengthening in relation to the dollar was a stimulus to the overall weakening of the US currency. China's good condition is also a positive sign for other emerging market currencies or those dependent on raw material exports (Australian dollar). The weaker dollar, therefore, has also increased the EUR/USD valuation, which translates into its relatively high values in the afternoon's trading.

The tense situation in Catalonia may create a mild threat to good sentiment. Today, around 6 p.m., the President of the Catalan Government, Carles Puigdemont, will give a speech to local parliament. It is difficult to say whether this will be a confrontation with Madrid or a willingness to ease recent violence. However, news agencies (Bloomberg, Financial Times) quoted yesterday's statement from Marta Pascal (Puigdemont’s associate) for the BBC in which she claimed that this would be a 'symbolic statement' without a declaration of independence. If that were the case, then the risk of a deteriorating sentiment would be limited.

Mixed data from the UK

With the info on Brexit, there are also reports on the British economy. Industrial production regarding the British Isles was published in the morning and was much better than the consensus. This grew by 1.6% in annual terms (estimated at 0.9% YOY) and manufacturing production accelerated to 2.8% to 2.8% YOY (estimated at 1.9% YOY). Additionally, data for the previous month was also revised upward. This is a positive sign for the pound, as it increases the chances of rate hikes in November.

On the other hand, disastrous data regarding August’s trade balance has been published. The trade in goods balance was negative and amounted to over 14.2 billion GBP (consensus 11.1 billion). This is the highest level of a deficit in traded goods. In addition, the previous month's data has been revised, raising the deficit for July from 11.5 to 12.8 billion. Despite a growing positive balance of services in recent months, the overall trade deficit was the third largest in history and reached 5.6 billion GBP in August. Therefore, it can be seen that the external balancing of the British economy is extremely slow, which means that the pound can still be overvalued fundamentally, even though it remains clearly below the long-term averages.

The zloty together with the global trend

A good sentiment on the yuan market and the weakening of the dollar are in favour of emerging market’s currencies, including the zloty. Around midday, the EUR/PLN pair is slightly below the 4.30 boundary. The zloty's situation hasn't changed much in relation to the forint. This means that the majority of movement on the PLN is generated by the external situation.

The statement made by Lukasz Hardt for Reuters did not arouse significant emotions in the market. The MPC representative stated that small rate hikes might be needed at the beginning of 2018 if inflationary pressures are to be increased. However, Hardt belongs to the hawkish group of the Council members, hence his opinion is still relatively far from the MPC's consensus. The PLN will be influenced during the next few hours by the rhythm of global markets. If the issue in Catalonia issue does not cause an increase in risk aversion, the EUR/PLN may end up below the 4.30 boundary.

 


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