Afternoon analysis 04.09.2017

04.09.2017 15:34|Conotoxia.com

Geopolitical factors mostly affected the currency ratings during Monday’s trading. The dollar has been losing again on the market sentiment. The Polish currency is clearly gaining after Moody's statement.

The EUR/USD above 1.19

There was a slightly worse sentiment in the market during this week’s first session, which was mainly related to geopolitical tensions. In the absence of some US investors (Labor Day in the US) and the lack of relevant publications scheduled for Monday, reports on the Korean peninsula have had a relatively large impact on exchange rates.

Today we observed a slightly larger risk aversion, which was created due to the appreciation of the yen, franc and euro among others. This was recently referred to as a "safe haven" in these types of situations. The dollar lost on the main currency pair as the EUR/USD rose above 1.19 again.

Mixed data from the eurozone has also come to the market’s attention. Producer inflation (PPI) was in July, at 2.0%. Compared to July last year, it turned out to be 0.2 pts. lower than expected. This is also recorded as the third consecutive month of declines - in April it was 4.3% YOY.

On one hand, the sentix economic indicator (based on economists’ survey) rose above expectations in September (28.2 vs. 27.4 points), approaching June’s 10-year peak this year. After two months of successive falls, the expectations component has risen. On the other hand, the current situation of the economic assessment has declined, but it remains high at all times.

The most important events this week, which investors will pay special attention to, are Thursday's press release and the European Central Bank's press conference. Therefore, until then, fluctuations on the currency market may be limited. Their significant increase during those mentioned events, however, may be expected on Thursday.

Stronger Zloty

The Polish currency was in much better shape today, primarily due to Moody's morning statement. The rating agency estimated that GDP growth in Poland could reach 4.3% YOY and the public finance deficit could reach 2.5%, the third year in a row would be below 3%.

As a result, the Polish currency gained in relation to most currencies. Compared to the Hungarian forint it exceeded 72.2, reaching its highest level since July 21st. The EUR/PLN exchange rate decrease was also significant, even in spite of the relatively strong euro. Today, markings of this pair fell as low as below 4.24, whereas around 10 am, they were still at 4.2650.

If market sentiment does not deteriorate significantly, the Polish currency is likely to maintain most of the profits that it generated. The chance for a surprise on macroeconomic data is also small. In the afternoon, there are no planned significant economic publications.

Tomorrow on the market

At approximately 10 am, IHS Markit will publish PMI data on industry and services for Germany, France and the eurozone economy, among others. However, these will be secondary readings, so the probability of a significant deviation from the initial data is relatively low. Thus, the impact of these publications on euro quotes will be rather small.

Much more impact on the British pound may have the publication of service sector PMI for the UK in August (at 10.30 am). The previous three months, from May to July, have been the period of slight changes in this index. The readings were in the narrow range of 53.4 - 53.8 points. The deviation of this range may mean a bit bigger reaction to the pound, given that now it is under the Brexit pressure and its quotes are subject to greater volatility. Median market expectations now stand at 53.5 pts.

At 11.00, Eurostat will publish data on retail sales in the eurozone in July. In June it positively surprised us, increasing by 3.1% y/y, against expectations of 0.5 percent points lower. This increase was, at the same time, the highest level since nearly 2.5 years, emphasizing the good economic condition of the eurozone. Market consensus in July assumes slightly lower growth, ie by 2.5% year-on-year.

Taking into account the positive processes currently taking place in the economy of the eurozone, the prospects for a significant decrease in sales seem limited (since March there has been an increase of at least 2% each month). In addition, the market is now primarily awaiting the Thursday's announcement and the European Central Bank conference and a potential reference to the exchange rate and/or a phasing-out of the asset purchase program.

 


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