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Afternoon analysis 05.06.2017

5 Jun 2017 15:12|Bartosz Grejner

The British currency gained despite a worse than expected PMI services reading. The biggest fluctuations in the currency market could happen in the last two days of trading this week. The zloty was in a slightly weaker condition, although exchange rates against the main currencies remained close to recent lows.

Stronger pound, weaker euro

Four days before the UK elections, most polls point to a win by the incumbent Conservative Party, albeit their advantage differs depending on the poll. Today’s ICM publication for The Guardian showed an 11 percentage points advantage, while the YouGov poll points to only 4 pp. According to the latter, Theresa May’s party would receive 300 seats in the Parliament, and the Labour party 268.

The pound visibly gained value today before 3 p.m. Its relation to the dollar (GBP/USD) moved above 1.29 and was close to the highest level since 26th May. It’s worth noting that the USD currency was also in better condition today – the dollar’s index (DXY) increased to around 97 pts. The pound’s appreciation wasn’t disturbed by a weaker than expected PMI reading of the services sector which pointed to the slowest growth rate since February. On the other hand, inflation pressure on producers further eased to the lowest level since September 2016.

The last two days of trading could see increased volatility on the euro, dollar and pound. On Thursday, the aforementioned UK elections will be held in addition to a press conference of the European Central Bank. James Comey, former director of the FBI, will testify before the Senate, which could also increase the dollar’s volatility.

Zloty was slightly lower today

Until 3 p.m., the Polish currency was somewhat in a weaker state, which the aforementioned upcoming events probably contributed to. CHF/PLN was trading close to 3.86, the upper boundary of the range since 22nd May, EUR/PLN increased to 3.19 and USD/PLN neared to 3.73. Despite the zloty being in a worse condition today than on Friday’s close, it was still close to recent lows against the main currencies and the range level was relatively small.

A potentially negative scenario for the zloty could be a continuation of the dollar’s appreciation coupled with an increased aversion caused by the upcoming political events. This could bring about an outflow of capital out of emerging markets countries which could ultimately weaken the zloty.

Tomorrow’s preview

Tomorrow’s events calendar is quite limited so fluctuations on the currency market should also be relatively limited. Sentix will publish at 10.30 a.m. the investors sentiment index for the eurozone. The index has been gradually increasing since August 2016 and reached 27.4 pts in May this year, the highest level in nearly 10 years. The median of markets expectations points towards a minor increase to 27.5 pts. Should the sentix investors index remain at high levels – around the May levels or above the consensus levels, this could confirm the recent positive sentiment in the eurozone.

Half an hour later Eurostat will share a report regarding retail sales in the eurozone in April. The December sales increased by 1.2% year-over-year, down from 3% and 2.5% in October and November respectively. However, recent months saw a progressive increase and the retail sales growth rate in March was 2.3% compared to the same period a year earlier. The market consensus forecasts a similar level in April as well.

A solid reading (in accordance with or above expectations) could strengthen the euro, especially in the context of a weaker dollar. Their potential impact, however, will probably be fairly limited. Investors will instead focus on Thursday’s statement and press conference from the European Central Bank. Although changes in the interest rates or the asset purchase program are unexpected, suggestions regarding future changes (and timing) of the aforementioned could spark a substantial reaction on the euro.


5 Jun 2017 15:12|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:

5 Jun 2017 12:25

Daily analysis 05.06.2017

2 Jun 2017 15:23

Afternoon analysis 02.06.2017

2 Jun 2017 12:32

Daily analysis 02.06.2017

1 Jun 2017 15:30

Afternoon analysis 01.06.2017

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