Afternoon analysis 15.05.2017

15.05.2017 15:09|Bartosz Grejner

The dollar has been weaker due to both negative inflation from the USA and the positive sentiment in Europe. Positive data from Poland may alter the dovish attitude from the Monetary Policy Council.

Dollar has been weak

Today, the dollar has been weak for another consecutive day. Investors most likely continue to discount Friday’s data regarding the US baseline inflation for April (1.9% YOY vs 2.0% YOY). Moreover, there was no macroeconomic data from the US market today. Since the morning, the EUR/USD has reached the 1.10 level. This has caused the dollar’s index to go below 99 points.

We won’t receive data that could significantly impact the dollar this week. Tomorrow, we will receive the data regarding industrial production for April, but its potential inconsistency with the consensus is quite unlikely. Therefore, it will have a limited impact on the dollar.

Therefore, the dollar’s evaluation will most likely be determined by the global sentiment. This week, we will receive significant data from the eurozone, which may impact the euro’s quotations. This data is expected to be fairly positive. Therefore, the EUR/USD may move above the 1.10 level.

Positive data from Poland

According to the National Bank of Poland (NBP), the Polish baseline inflation for April was at the level of 0.9% YOY. This result was its highest level in approximately three years, as well as 0.2 percentage points above the market consensus. This information is quite essential in regard of the MPC meeting, which will be held on Wednesday.

Even though the market does not expect changes in interest rates, the MPC announcement will be crucial. Previously, the Council was fairly dovish and cited a low level of baseline inflation as one of the main reasons for their attitude. Therefore, Wednesday’s message may be crucial for the zloty. If the Council suggests the possibility of a sooner monetary tightening, the zloty may gain value.

The report regarding the current account for March was also positive. Even though its deficit was larger than expected (738 million euros vs 177 million euros), both export and import increased significantly (2.6 billion euros and 2.4 billion euros respectively).

The zloty was stronger today. However, the difference between its quotations from Friday was minor. The PLN gained the most against the dollar and the USD/PLN had gone down to approximately 3.835. This week we will know more essential data for the zloty. Therefore, volatility on the Polish currency may be increased.

Tomorrow’s events

Tomorrow, the Polish Central Statistical Office (GUS) will publish the data regarding the GDP for the first quarter. This index is estimated to reach the value of 3.9% YOY. Due to the fact that the economic data from this year’s beginning was positive, the GDP reading should be consistent with the market consensus. This should sustain the positive sentiment towards the zloty.

At 10.30, the Office for National Statistics (ONS) will present the CPI for April. Prices in the UK have been increasing systematically for approximately eighteen months. In March, the CPI was at the level of 2.3% YOY. Currently, the market consensus is at the level of 2.6% YOY. If the reading is above this level, this would increase expectations regarding a more rapid monetary tightening and strengthen the pound.

At 11.00, Eurostat will present the eurozone’s GDP growth for the first quarter. The estimates are at the level of 1.7% YOY. At the same time, we will receive the eurozone’s trade balance for March, which is estimated to increase from 17.8 billion euros to approximately 25.8 billion euros. The ZEW institute will present the consumer sentiment index for both the eurozone and Germany. Tomorrow’s data may confirm the positive economic trend in Europe and strengthen the euro.

At 15.15, the Federal Reserve will publish the data regarding industrial production for April. This index increased 0.5% MoM in April. However, the industrial processing decreased by 0.4% MoM. This was its first decrease since August. The market estimates a 0.3% MoM increase in industrial processing. We have been observing the dollar’s wear-off since Friday. The American currency may be slightly supported by positive data. Nevertheless, this will most likely not change the current trend.

 


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