Afternoon analysis 16.01.2017

The euro zone’s trade balance for November is a positive surprise. According to Bloomberg’s survey, the majority of analysts expects that the QE program will be extended beyond 2017.

Relatively positive data from the euro zone

Today, Eurostat informed that the euro zone experienced a 25.9 billion euro trade surplus. This was better than the expected level of 20.1 billion euro. Moreover, export increased by 6% (up to 184.2 billion euro), while import increased by 5% (up to 158.3 billion euro).

However, an improved balance of the euro zone in the entire 2016, will most likely be a result of lower import, rather than of a larger export. The euro zone’s export decreased by 3.9 billion euro between January and November, while at the same time import decreased by 37.8 billion euro. This gives a surplus at the level of 248.2 billion euro against 214.3 billion euro the year before.

Bloomberg conducted a survey among analysts, regarding potential changes in the European monetary policy. The majority of surveyed indicated the meeting on September 7th and they claimed that the changes will result in a decrease in monthly range of assets purchases, as well as extending the QE program beyond 2017. If this scenario occurs, the euro will remain weakened by the mild policy from the ECB.

The currency market was calm today. On one hand, this was because of the lack of significant macroeconomic data. On the other, due to Martin Luther King’s Day the American stock market was closed today. Despite the latter, the dollar strengthened against the majority of currencies today.

The only exception as the Japanese yen. The USD/JPY went below the 114 level and established the its lowest level since December 8th, 2016.Due to speculations regarding “hardcore Brexit”, the pound was weak. However, due to the lack of new information and a lower turnover, the British currency started working-off its losses in the afternoon. The GBP/USD was increased from 1.198 to 1.21.

Zloty is calm

The lack of changes in Poland’s rating did not cause a significant market reaction. The main currency pairs remained near their previous level. Due to the pound’s global weakness, it remained below the level of 5.00 against the zloty. The Polish currency strengthened against the euro as well (4.37). The forthcoming days may even push the EUR/PLN near the 4.35 level. However, the appreciation potential seems to remain quite limited. This is because fiscal dangers still exist and the end of the week will bring two significant events that may wear-off the zloty. These events are the ECB decision on Thursday and the oath of the new American president on Friday.

Tomorrow’s events

At 10.30 AM, the Office for National Statistics will publish the British CPI data for December. This index has been gradually increasing since November 2015. In November 2016, the CPI was at the level of 1.2% YoY. Currently, the market expects a result at the level of 1.4% YoY.

This reading may increase volatility on the pound, especially if it is significantly inconsistent with the consensus. Moreover, we will hear what Theresa May will say regarding Brexit. This testimony will most likely have a strong impact on the pound as well.

The past few months have brought increasingly higher levels of both the company and the consumer sentiment in Germany, as well as in the euro zone. Tomorrow at 11.00 AM, the ZEW institute will publish the economist sentiment index for the euro zone and Germany.

The market expects a further improvement in both of these indexes (24.2 points in the euro zone and approximately 18.3 points in Germany). Positive data from the euro zone could support the euro. However, its appreciation potential remains limited by accommodative monetary policy from the European Central Bank.