Afternoon analysis 07.12.2015

The divergence between monetary policy of the major central banks determines the currency market. Weak reports from the eurozone. The zloty dropped after brief rebound.

Last Thursday the European Central Bank missed the market expectations. Although the Frankfurt-based institution increased the monetary stimulus, the move was smaller than it was expected. A lower deposit rate and extension of the asset purchasing program were not enough, given the ECB did not increase the monthly amount of purchases.

However, on Friday ECB President Mario Draghi once again stressed the dovish stance of the central bank. He said that there is no constrain on tools used by the monetary authorities if they comply with the ECB's mandate. In addition Draghi said that the ECB's stance can always be adjusted if needed.

Draghi's speech was released just after the US labor market data. In November employment increased more than it was anticipated and the prior month data was revised up. The report increased the probability that the US central bank will hike interest rate at its December meeting.

Growing divergence between the Federal Reserve and the European Central Bank will shape the market sentiment. Today the EUR/USD extended its drop. A similar tendency is very likely in the longer term.

Poor data

The German industry has continued to disappoint. After weak report on orders on the last Friday, today the data on production missed the forecast. Production increased 0.2 percent on a monthly basis against the 0.7 percent that was expected. In the prior month it dropped 1.1 percent. On a yearly basis production gained 0.3 percent.

Although the result was weaker that the forecast, the overall situation improved. As a result, the fourth quarter may bring rebound in industry after weak July-September period when the Chinese crisis hit and other emerging market countries posted poor result.

Moreover, the Sentix index, that portrays the investor's expectations concerning the economy, missed the forecast. The measure increased to 15.7 from 15.1 in the prior month versus the 17 that was forecast. The report showed that the assessment of the outlook for the eurozone was improved, whereas it is slightly more negative for other regions. It was caused by the active ECB's stance, even in the situation that the central bank missed the expectations.

Weaker zloty

After rebound in the end of the previous week, on Monday the zloty resumed decline. The Polish currency dropped against all its major pairs. As a result, the zloty moved in the direction of record-low levels.

The zloty remained under pressure of aversion against the emerging market currencies. The Czech crown and the Hungarian forint also dropped. However, the zloty's decline was stronger as the Polish currency would have been additionally pressured by the domestic factors.