Afternoon analysis 06.04.2017

The ECB minutes did not strengthen the euro. The American jobless claims are near a forty-four-year record. The Czech central bank has surprised the market by making the exchange rate against the euro flexible. The zloty is gaining value due to the positive sentiment towards the emerging market currencies.

ECB minutes

The ECB minutes state that there was a discussion regarding the retraction of a statement concerning the possibility of a further decrease in interest rates. Eventually, the ECB representatives came to the conclusion that it would be too soon to implement. They also discussed the normalization of the monetary policy.

The minutes also indicate that Peter Praet was trying to convince the others to reduce suggestions about actions that would lead to an even milder monetary policy. In general, the message was slightly more hawkish than previous comments from the ECB members. However, a moderate increase in wages was also emphasized. The euro was relatively indifferent to this message.

The EUR/USD was within the range of 1.065-1.067. The dollar received a positive signal from the labor market. The weekly jobless claims appeared to be by 16k better than expected (234k). The insured unemployment rate decreased from 2.052 million to 2.028 million. Therefore, the dollar may continue to gain value.

CNB resigns from stable exchange rate. Zloty gains

The Czech National Bank (CNB) decided to stop keeping the EUR/CZK exchange rate above 27 koruna. This decision has caused a 1% increase in the koruna value against both the euro and zloty. The PLN/CZK was pushed from 6.376 to approximately 6.31 and the EUR/CZK went down to 26.7.

In addition, the zloty strengthened as well. The EUR/PLN went from 4.24 to 4.227. The Polish currency also became stronger against the pound, franc and dollar. Nevertheless, the zloty was not the only currency that gained on the CNB decision. Additionally, the Hungarian forint strengthened and because of this the PLN/HUF remained at the level of approximately 73.2.

Tomorrow’s events

At 8.00, Destatis will publish the data regarding both German industrial production and trade balance for February. The market expects that both of these indexes will be at a slightly lower level than previously. Nevertheless, this data should only have a stronger impact on the euro, if its result is significantly inconsistent with the consensus.

At 10.30, the British Office for National Statistics will publish the data regarding the industrial production for February. Due to the official initiation of the Brexit process, the market may focus more on macroeconomic data. The pound has been clearly strengthened by the positive services PMI reading from Wednesday. Moreover, this reading has increased the likelihood of a tighter monetary policy from the Bank of England.

The market expects an increase in both industrial production and industrial processing (3.7% YOY and 3.9% YOY, respectively). The pound may be more vulnerable to this data, and therefore, more volatile.

At 14.30, the Bureau of Labor Statistics (BLS) will present payrolls for March. This data consists of the employment rate in the non-agricultural sector, the unemployment rate and the average hourly wages. The market should mostly focus on the latter, because this index has been disappointing over the past four months. The market consensus for hourly wages is at the level of 0.2% MoM.

The employment rate in the non-agricultural sector will be crucial as well, mainly because the previous ADP data was yet again above the market consensus (263k). Payrolls will most likely cause significant fluctuations on the dollar. If this data is worse than expected, the dollar may lose value.