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Afternoon analysis 01.06.2017

1 Jun 2017 15:30|Bartosz Grejner

The industrial PMI from Germany has confirmed a positive condition of German economy. The employment rate in the US private sector increased beyond expectations. However, the jobless claims index was slightly disappointing. The EUR/USD is near 1.12. The zloty is slightly weaker after the PMI data from yesterday, but tomorrow’s data from the USA may appear even more essential.

New records of German PMI

IHS Markit published the German PMI for May. This was the second reading of this index and it appeared to be slightly higher than the initial data from April (59.5 vs 58.2). At the same time, this was its highest result in six years. Today’s report confirmed that German economy has been in a very positive condition.

However, inflation pressure in May was lower. This was the first month of inflation slowdown since June 2016. The high PMI from Germany also contributed to a positive result of this index for the entire eurozone (57 points).

Nevertheless, the aforementioned data had a limited impact on the currencies. Investors were mainly focused on the data from the US labour market. Today, the ADP published the employment rate for the private sector, which increased by 253k in May. This result was significantly higher than expected (180k).

The ADP data caused a very positive reaction on the dollar. The EUR/USD went down to 1.12 and the USD/JPY increased to approximately 111.5. This caused the dollar’s index to reach the level of approximately 97.3 points.

Shortly after the ADP report, the US Labour Department presented the weekly jobless claims and the amount of insured unemployed. The jobless claims index was at the level of 248k, which was by 10k worse than expected. However, the amount of insured unemployed was below the level of 2 million for the seventh consecutive week.

It’s likely that the jobless claims data (which is still near its forty-four year minimum) made it impossible for the EUR/USD to go below 1.12. However, today’s positive data from the ADP increases the chances for the growth in the official report from the Labour Department. If the data regarding the average wage is positive, the dollar may gain value significantly.

Zloty is weaker

Today’s industrial PMI from Poland wore-off the zloty. Even though this index was at its lowest level in six months, the IHS Markit claimed that the economic growth in the Polish industrial sector in May remains strong. This caused the zloty’s depreciation against the main currencies to be very mild.

Nevertheless, the zloty’s reaction to the data from the US labour market can be definitely stronger. After today’s ADP report, a positive message from tomorrow’s data from the US Labour Department may cause a significant increase in the dollar’s value.

A strong appreciation of the USD could cause a strong capital outflow from the emerging market currencies, including the zloty. Moreover, the forthcoming election in both the United Kingdom and Germany may deteriorate the sentiment towards the eurozone and increase the risk aversion, which would additionally decrease the zloty’s value.

Tomorrow’s events

Tomorrow’s main event is the US Labour Market report for May. The unemployment rate in the USA has been decreasing recently and reached its ten-year minimum (4.4%) in April. Moreover, the employment rate has been within the range of 150k – 200k.

Investors will most likely focus on the average hourly wage. This index increased 0.3% MoM in April. Currently, the market consensus is at the level of positive 0.2% MoM. A slightly higher increase in the average hourly wage would indicate a higher inflation pressure. This would increase the likelihood of two rate hikes this year and significantly strengthen the dollar.

1 Jun 2017 15:30|Bartosz Grejner

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 acknowledgement of the source is prohibited.

See also:

1 Jun 2017 12:09

Daily analysis 01.06.2017

31 May 2017 15:12

Afternoon analysis 31.05.2017

31 May 2017 12:23

Daily analysis 31.05.2017

30 May 2017 15:35

Afternoon analysis 30.05.2017

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