Daily analysis 18.03.2016:
The situation on the currencies of the emerging markets and the currencies of the countries which export raw materials, can visibly disturb the rate of the EUR/USD. The zloty should remain near the current level against the euro and the franc in the base case scenario.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
- 15.00: Sentiments of the American consumers examined by the University of Michigan (estimations: 92.2 points).
Praet reminds in his statements of the cuts
This morning, we could observe a depreciation of the EUR/USD within the range of several dozen pbs, and the main currency pair depreciated into the central areas of 1.12. This was caused by statements from a member of the board as well as the ECB chief economist, Peter Praet, among others.
In the interview with Praet, published on the ECB website, we can read that interest rates may be decreased if the economic situation deteriorates. He also recalled an excerpt from the previous ECB announcement, which included information that, “interest rates will remain at their current level or at a lower level for a longer time, which significantly exceeds the horizon of purchase of assets.”
We also took note after the ECB meeting, that the market had focused too much on Draghi's doubts regarding further decreases and that his arguments could lead to further cuts. However, for the time being there is a small chance that we would quickly see a serious reversal in tendencies on the EUR/USD, and a return below 1.10, mostly due to a dovish message from the Fed.
Raw material currencies took over the initiative
Evaluation of the EUR/USD via the American dollar channel, can be also influenced by the situation of currencies from countries which export raw materials. From beginning of the month, the Brazilian real, Russian rouble, Australian dollar, and Norwegian krone gained against the American dollar, respectively 11%, 10%, 7%, and 4%.
The flow of capital from the USD to other currencies, causes a general weakening of the buck, which also reflects in a weaker evaluation of the dollar and the euro. This argument should remain valid, if the prices of oil and industrial metal increase. On the other hand, this argument contains a certain limitation.
An improvement of the global sentiment wears-off the main argument of the Federal Reserve for limiting hikes at the previous meeting. Additionally, a better worldwide situation and higher evaluation of raw materials, may cause a faster return to the target of the American inflation.
As a result, the perspective of monetary tightening in the USA may return relatively soon. It does not have to be announced at the Fed's meeting. If the forthcoming data from the labor market is good, and the PCE base inflation gets near 2% and remains there, the market will begin to evaluate an increase in interest rates, and even the dovish approach of the Federal Reserve will probably modify quite soon.
Thus, if the situation on raw materials stabilizes, and appreciation of currencies from the countries exporting oil and industrial metals stops, we can expect the dollar to return to a positive correlation with the shares market. In this scenario, the USD appreciation should also support an increase in profitability of the American treasury bonds.
Zloty remains stable
A moderate optimism in the wide market is sustained by the scenario of stabilized zloty against the euro as well as the franc, within the forthcoming hours. It is also possible that the beginning of next week will not cause a greater volatility on the PLN. The perspective of stabilization is likewise supported by statements from the particular members of the MPC. This confirms the signals from the recent meeting of the Council, assuming they keep interest rates unchanged.
In his interview with the Bloomberg agency today, Marek Chrzanowski said that, “currently a change in interest rates would be an unnecessary action, which would only add uncertainty in the market.” A similar viewpoint was also presented by Ancyparowicz and Gatnar in the past few days.
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