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Afternoon analysis 08.01.2015

8 Jan 2015 16:57|Artur Wiszniewski

The euro hit by recent reports. The zloty stabilized against the dollar and rose slightly to the common currency. The Polish currency didn't manage to exploit improvement of investor's sentiment.

The German economy is disappointing again. Industrial order fell more than anticipated and resulted in mounting concerns that the major euro zone's economy is flagging. Orders dropped 2.4 percent from previous month – more than minus 0.6 percent anticipated. It rose 2.9 percent in the previous month (revised from 2.5 percent).

On Friday data on industrial production will be released. If tomorrow's data also disappoint, the assessment of the German economy will be severely deteriorated. Industrial production rose 0.4 percent on a monthly basis, according to expectations, more than 0.2 percent in the preceding period.

Last report from Germany – especially indices like PMI, ZEW or Ifo – suggested that the economy is getting better. Data indicated an improvement in economic activity after two quarters of under-performing. Hoverer, given recent reports, this assessment should be more wary.

Solid data from the US

The Federal Reserve maintained its view at the economy and it is pursuing its plan to rise interest rates within six months. These conclusions are based on yesterday's publication of minutes from meeting of the Federal Open Market Committee. This factor supported the drop of the EUR/USD.

Report on unemployment claims proved that the US labor market remained in a solid shape. Number of new unemployed fell to 294k form 298k. It was slightly higher than 290k anticipated. However, the general view at the US labor market and economic situation is clearly positive.

Today's data combined with yesterday's ADP figures (employment in private sector rose 241k – more than 226k expected) give strong belief that tomorrow’s data on employment situation will be also very good. According to projections, the employment in non-farming sector rose 240k after gaining 321k in the preceding month and the unemployment rate stood at 5.7 percent – less than 5.8 percent previously.

The recent reports and comments from central banks officials don't leave any doubt whether the EUR/USD is going to exceed its plunge. Today the pair hit 1.17535 – the lowest level since January 2006 and it is heading at 11-year lows.

The pound under pressure

The pound – like other currencies – perform badly against the dollar. The GBP/USD fell today to its lowest in 17 months.

The Bank of England left interest rates unchanged as expected. The cost of credit remain at record low 0.5 percent. Two members of the Monetary Policy Committee - Martin Weale and Ian McCafferty – opted or interest rates hikes – similarly like previously. Rate setters pointed at wages growth that may push prices higher.

The pound performed badly due to shift in expectations for interest rates hikes. Current market consensus deferred the expected tightening at 2016 due to deterioration of economic performance and lower inflation. Given current circumstances, the pound – like other currencies – is in negative position against the dollar.

The zloty strengthened against the euro

An improvement of investors' sentiment – reflected by gains of S&P 500 – resulted in gains of the zloty. The Polish currency in the second part of the session, rose against the euro and frank and stabilized against the dollar.

The minister of finance Mateusz Szczurek said that deficit was lower by 17 billion zloty than planned due to 12 billion smaller expenditures and 5 billion higher receipts. Given these results, the government deficit in 2014 would have been lower than 3 percent of GDP, what gives chance that the European Commission drops the sanctions due to large deficit.

The EUR/USD heading to its 11-year lows is a burden that won't allow the zloty to increase in the near term. Given current circumstances, the zloty is expected to stabilize at low level against the dollar and gain slightly against the euro.

8 Jan 2015 16:57|Artur Wiszniewski

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:

8 Jan 2015 12:40

Daily analysis 08.01.2015

7 Jan 2015 17:09

Afternoon analysis 07.01.2015

7 Jan 2015 12:33

Daily analysis 07.01.2015

5 Jan 2015 17:18

Afternoon analysis 05.01.2015

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