Afternoon analysis 09.12.2015

The euro rebounded. Ewald Nowotny from the ECB supported the common currency. The zloty was steady at low level.

Ewald Nowotny defended the ECB's decision made in the previous week. The Austrian Central Bank President said that the market expectations were misjudged. Nowotny assessed that the communication of monetary authorities was appropriate and that investors made a mistake. Nowotny made these remarks at a news conference after releasing the latest forecast for the Austria economy.

The view presented by Nowotny limits the probability that the ECB will adjust its stance to the market expectations in the near future. As a result, the euro increased on Wednesday. The EUR/USD gained for the second day in a row to the 1.0950 level, which was the highest since last Thursday's inaction of the ECB.

In the previous week the Frankfurt-based institution increased the monetary stimulus. However, measures that ECB has used were narrower than it was expected. The major issue was that the central bank did not increase the monthly amount of asset purchases. The ECB buys 60 billion euro in assets on a monthly basis and the forecast was for additional 20 billion.

Nevertheless, lower probability of the ECB's additional actions is only one factor that supports the EUR/USD rebound. Another important issue is a negative sentiment in the broad market that was reflected by declines of the major stock indexes. The risk aversion supported the euro, which is financing currency in carry-trade operations.

Stable zloty

The unemployment rate increased in Poland. The labor ministry said that unemployment rate stood at 9.7 percent in November against 9.6 percent in the preceding month. It was the first increase since January. However, the increase in November was caused by seasonal factors. And the underlying downward trend is still very strong. The released did not affect the zloty.

Deputy Finance Minister Leszek Skiba said that the government is not planning to exceed the 3 percent GDP threshold for deficit (according to PAP). It was positive information in the context of anxiety regarding the outlook for the Polish public finance. If the level is exceeded, Poland will return to the excessive debt procedure.

Pressure on the commodity currencies was limited as the oil price slide was tamed. However, there was only a stabilization and the probability of a larger rebound is still limited. The USD/RUB was still near 70. The overall emerging market currencies sentiment remains negative. Given the situation, better that expected inflation data in China did not support risk currencies (inflation stood at 1.5 percent against 1.3 percent that was forecast).

The zloty was little changed on Wednesday. In the second part of the session the Polish currency increased against the dollar and was steady against the pound and the franc. However, the zloty dropped against the euro. The EUR/PLN hovered above 4.34 zloty. Given the Federal Reserve meeting in the next week, the probability of a stronger zloty is limited.