Calm market for now (Daily analysis 12.02.2018)

Stabilization noticed on a broad market may reduce the risk of depreciation of currencies sensitive to sentiment. The high yields remained a threat to US government bonds. The zloty stabilised close to the 4.18 EUR boundary. Lack of macroeconomic data.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• A lack of macro data may noticeably affect the analyzed currency pairs.

Important US session

Friday's session on the US market was very important. The end determined the sentiment over the weekend. After 2% drops, the S&P 500 index closed its quotations at a 1.5% increase. As a result, today's sentiment on the European market is relatively good.

However, the uncertainty is still noticed on the market. The sharp and strong decline was difficult to predict after extremely good quotations disturbed the overall calm. Therefore, market nervousness and selecting particular assets rather than "buying" the entire market may be observed. This will also translate into index results, where reaching new highs will be difficult.

The behaviour of emerging markets is still a riddle. Their currencies do not show risk aversion. Perhaps investors believe that, along current with very good economic conditions, developing countries are a better place to make profits than developed economies. As long as such a belief is maintained, movements in many Asian, Latin American or currencies in our region (including the zloty) will remain limited.

A threat from the share market

A threat to the share market is posed by the US bonds' behaviour and the continuing upward trend in their yields. They reached the last highs quite quickly (instruments maturing in 30 year exceeded 3.17%). Competition for shares and the expected increase in financing costs may be negative for markets.

Apart from the issue of rate hikes, it is also worth noting that the Fed is withdrawing from the QE, which may also stimulate growth in bond yields. In general, central banks are on the path to monetary stimulus reduction. The difficulty in financing businesses and households can now act as a brake on rapid economic growth.

Further increases in yields on government bonds may discourage putting capital in foreign investments. Transaction financing is becoming more expensive and the risk of loss is higher. Therefore, even if the emerging countries' currencies do not lose value, their increases may be difficult.

Relatively calm situation for the zloty

A better global sentiment decreased zloty pressure. The EUR/PLN pair depreciated from around 4.20 to 4.18. The dollar also significantly limited the recent increases in relation to the zloty. Market nervousness seems to be maintained. Many days of good sentiment on global markets would likely be needed for emerging currencies (including the zloty) to reach new highs.

For now this type of scenario, which is positive for the zloty, is unlikely actualise. Therefore, the EUR/PLN pair will probably move within the relatively wide range of fluctuations at 4.15 to 4.20. Moreover, the main currency pair will move in a rather chaotic way and will probably exit from this range at a higher rather than lower level.